In the first part of this series, I presented some of the most common tax questions that home business owners have regarding deductions and other tax issues. Of course, if we discussed every common question regarding taxes, we'd be here for days ... or even weeks. But how boring would that be? Taxes aren’t exactly the most sexiest or provocative of subjects. But they are a necessity, none the less. So here are some more questions and answers, as described by the Internal Revenue Service, that might help you, as a home business owner, during this particularly delightful time of year! Q. Do businesses have to obtain the taxpayer identification number (TIN) from vendors and keep it somewhere on file? A. In general, businesses are required to obtain the TIN from vendors if they are required to file any return, document or other statement that calls for the taxpayer identification numbers (TINs) of other taxpayers. Form W-9 (available at www.irs.gov.), Request for Taxpayer Identification Number and Certification, can be used to make the request. The business should also maintain the verification of these numbers in their records. Q. How do you distinguish between a business and a hobby? A. Since hobby expenses are deductible only to the extent of hobby income, it is important to distinguish hobby expenses from expenses incurred in an activity engaged in for profit. In making this distinction, all facts and circumstances with respect to the activity are taken into account and no one factor alone is decisive. Among the factors which should normally be taken into account are the following: - Whether you carry on the activity in a businesslike manner
- Whether the time and effort you put into the activity indicate you intend to make it profitable
- Whether you depend on income from the activity for your livelihood
- Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business)
- Whether you change your methods of operation in an attempt to improve profitability
Whether you, or your advisors, have the knowledge needed to carry on the activity as a successful business - Whether you were successful in making a profit in similar activities in the past
- Whether the activity makes a profit in some years, and how much profit it makes
- Whether you can expect to make a future profit from the appreciation of the assets used in the activity
Additional information on this topic is available in section 1.183-2 (b) of the federal tax regulations. Again, for more information on this topic, visit www.irs.gov. Also, I’ll share more pertinent questions and answers in future installments. |
