Welcome back to Ned’s Blog Spot, where you can find all your tax tips and tricks. Our tax deadline is quickly approaching, and we want to make sure we provide you with all the information we can, for your filing to be as quick and painless as possible. Below, you will find a few quick tidbits about the upcoming tax season. This month, we have tidbits surrounding hobby losses and teacher tax breaks.
Hobby Losses
If you are reporting large losses from hobby activity reported on your Schedule C to help offset wages, business earnings or other income, the IRS is on the hunt for you. Reporting hobby losses is an audit red flag. Revenue collected from a hobby is taxable, but you cannot deduct expenses. The 2017 tax law temporarily nixed, through 2025, miscellaneous itemized deductions subject to the 2%-of-adjusted-gross-income threshold, including hobby losses. To deduct a Schedule C loss, you must show the activity is a business. The activity needs to be conducted with continuity and regularity in a businesslike manner and must have a reasonable goal, to make a profit from it. IRS regulations provide a safe harbor. If your activity generates profit in three out of five consecutive years, the law presumes you’re in business to make a profit unless IRS establishes otherwise. The hobby business analysis can be a bit trickier if you cannot meet the safe harbor. This is due to the determination of whether an activity has been categorized properly as a hobby or a business activity. To determine this, the IRS looks at nine factors:
1. Expertise of the taxpayer and advisers
2. Manner in which one carries on the activity
3. Time and effort devoted to the venture
4. Expectation that assets used in the activity may appreciate
5. History of income and losses
6. Amount of occasional profits
7. Success in carrying on other activities
8. Elements of personal pleasure or recreation that one gets from the activity
9. Whether the tax payer has substantial income from other sources, such as wages
If you are unsure of whether you are a hobby or a business, or further questions about hobby losses, please visit: https://www.irs.gov/newsroom/know-the-difference-between-a-hobby-and-a-business
Teacher Tax Breaks
With school just starting back, we wanted to make sure and let our teachers know about this tax break: The educator expense deduction. Teacher can now deduct up to $300 for the cost of their us reimbursed expenses. This is an above-the-line deduction taken on schedule 1 of the 1040. You do NOT have to itemize on Schedule A to claim it. The cap is $600 for spouses who are both teachers and file a joint federal tax return. Homeschooling parents, unfortunately, do not get the break. It’s available only to K-12 educators who work 900+ hours during a school year in elementary or secondary school. Among eligible expenses:
– Professional development fees
– Books and supplies
– Materials for the classroom
– Computer software
– COVID-19 protective items
We hope you find this information helpful as you begin to prepare for the upcoming tax season. If you have any questions, the information for our downtown office will be listed below and don’t forget to check back for more!
Ned Jackson Downtown Office
Address
255 N Liberty Street
Jacksonville, FL 32202
Phone
(904) 356-0349
info@nedjacksontax.com
