Hobby or Business? That is the Question. Since the dawn of income taxes, we, the over-worked tax-payer have tried to find ways to create a tax deduction from what we love to do. The Hobby Tax isn’t a tax per-se, but, since we spend a great deal of our discsretionary income on the things that we love to do (our hobbies), and since those Hobby Losses are not tax deductible, it sure feels like a tax. The solution for many, has been the Hobby Business.
What is a Hobby Business?
This is really a question of what is a Hobby Business, then and now. Until the age of the BLOG, the Hobby Business was some tiring effort at turning your hobby into a traditional business. Too often this effort would lead to the love for one’s joyful pastime turning into resentment that what we once loved to do is now work. This is mostly due to the fact the most business owners are really “Job Owners” and end up a slave to their self inflicted job. (Read The E-Myth by Michael Gerber). But, along came the blog, which would spell the end to setting up a store, paying rent, hiring employees, and doing all the grunt work of a “Traditional Business”. Now, the “Tradigital Business” is, well, digital. And so a Hobby Businesscan now be as simple as writing about what you love. Let me repeat this. No store. No staff. No headaches. Only the time to do what you love, and then a little more time talking about it (writing a blog about it).
The Taxman and the Hobby Business
Before I write any more on this subject it’s time for the good old fashioned disclaimer. I am not an accountant, or a lawyer. Get some real advice about this please. BUT, I have talked to many accountants about this, and they are all shocked when they realize this simple truth. You see, the burden of a business in the eyes of the taxman is “potential to earn revenue”. This is because entreprenuers need incentive, or rather protection against penalty for trying to launch a business. Most business have losses for months, even years. In fact major, MAJOR business have never turned a profit. LinkedIn was just valued at 6 billion dollars in their fantastic IPO and they have NEVER had a profit. Of course there is a fine line here. These “Hobby Losses” must be defensible. If you’re asked about your hobby business, you need to be able to convince the average person that the hobby business is a real business, not just a hobby in disguise.
Speaking of the average person. The average american household, according to the US department of labour, earns around $63,000 per year. The amount of taxes paid varies by different calcuations but averages around 18% of this income or $11,340. If you look close at the image “Where does the Money Go” you’ll see that many of our expenditures are discretionary. The money we spend on things like entertainment alone is an average of $2,600. But there’s so much more, like books, alcohol, tabaco, shopping and apparel. There’s even a category for miscellaneous ($800). Now this list need to be broken down better to things like: Kids Football, Golf Trips, Gardening Supplies. These are the itemized discretionary expenses, or Hobby Expenses that we can write off if we have started a Hobby Business out of the subject. Even the big categories that aren’t traditionally tax deductible can be written off as hobby expenses including: home entertainment / media, home decorations, home improvement, children’s clothes and toys and even eating out. In fact, there is not reason you should ever pay a tax again! So if you spend $4,500 dollars per year, and your tax bracket is 30%, I would suggest your tax savings might be $1,500 per year. Every dollar that you can write off, is no longer taxed at your personal tax rate. Here’s a list of both the most popular hobbies and the most expensive hobbies so you can get motivated to see where you create some tax deductions. And keep this in mind: Just because you don’t have any of these “Hobby Expenses” now, doesn’t mean you can’t just go ahead and start doing them. In fact, I am launching websites on how to fly, how to surf, and the best places in the world to travel, not only because I want to do those things, but also because I want to not have to pay for them, or at least to not be taxed because of them. The Hobby Tax is now abolished. Repeat after me:
I will never pay the Passion Tax again!
|Apparel & Services||$1,881.00||3.8||Yes|
- Watching TV
- Family Time
- Going to Movies
- Renting Movies
- Listening to Music
- Team Sports
- Church Activities
- Playing Music
Most Expensive Hobbies
- Big Game Hunting
- Mountain Climbing
- Boat Racing
- Hot Air Balloon
- Art Collecting
- Drag Racing
- Ballroom Dancing
- Comic Book Collecting
- Camel Racing
- Making a Website (Irony at it’s finest)
- Collecting old Technology (cameras)
- Collecting Memorabillia
- Tornado Chasing
- Home Brewing
- Flying Helicopters (real and toy)
- Car Collections
- Faberge Eggs
- Stamp Collecting
- Jef Packs
- Geo Caching
- Expensive Vices (Habits and Addictions)
How to create a Hobby Business
Before I talk about the how-to create the website business, let me first say that the how-to-be-sure that you can defend your hobby business is to make sure it makes money. If it’s making money, it’s a business. Now, do you know how easy it is to make money online? Put up a website, write an article, and drop some Google Adsense, or Affiliate ads into your site, and I bet you make some money. It might not be much, say maybe, $1 per day? I also bet you that if you write an article every week, you eventually get to $10, even $20 dollars per day. Hey, that’s enough for 6 rounds of golf per month! ($100 average cost for green fees/cart etc). Now, not only are you saving taxes on your golf club costs, membership dues, even travel to courses around the world, your also making money from it. Pretty sweet hey?
How to create a Website Business (Blog Business)
I am not going to duplicate my efforts from a previous post, so check out this post on how to build a website, which covers the basic technology of launching a website. The process of building a Website Business is only a few steps more, however you should know, your website business can become a Million Dollar Website if you really put some effort into it.
Leave a comment and register to get started
Now aren’t you motivated to get started? Before you register for the Passion Profits roadmap, be sure to tell us what hobby you think is perfect to build your Hobby Business around. How much do you think you’ll save each year in taxes? Take a guess how much you spend, and then multiply that by your tax rate. That’s the amount you’ll save each year.