Okay, so I'm trying to file with TaxACT. I'm declaring $16,000 in MISC income from a hobby. I paid Q2 $3,000 in estimated tax payments in 2013 to be safe. Any advice out there? I'd prefer not to go through the hell of an audit. Maybe I should take a hit and end up paying in a chunk of money I don't have and make this a business activity? UGH!
I found some law and analyzed it as follows:
1. § 183(a) Hobby Rule: Individuals are not allowed to deduct Losses Attributable to an Activity "not engaged in for Profit." |
• Requires an "Actual and Honest Objective of Making a Profit" based on an Assessment of the Facts, and NOT just a "Statement of Intent" (does NOT need to be a "Reasonable" Objective)
• "For Profit" Factors:
1. The manner in which the Taxpayer carried on the Activity;
2. The Expertise of the Taxpayer or his Advisors;
3. The Time and Effort Expended by the Taxpayer in carrying on the Activity;
4. The Expectation that Assets used in the Activity may Appreciate in Value;
5. The Success of the Taxpayer in Carrying on other Similar or Dissimilar Activities;
6. The Taxpayer's History of Income or Loss with Respect to the Activity;
7. The Amount of Occasional Profit which is earned;
8. The Financial Status of the Taxpayer;
9. Whether Elements of Personal Pleasure or Recreation are Involved.
I do software development for open-source projects, such as custom Android ROMS and other software, and have done so since 2003.
When I am not at work or busy with other activities with my wife, I usually plop on the computer and play around with software. I do this with friends from around the world. I spend no more than 2 hours a day doing this. Normally, I only do this on the weekend or holidays.
I haven’t expected anything to gain value. In fact, I fully expect for my work to be useless within two years to anyone who finds it worthwhile today. I keep playing with new Android variations to try and see what I can do to them.
I have never declared a loss with my hobbies. I consider anything I do to be for pleasure, so there is no reason to deduct the fun and joy I get out of tinkering. If I were to declare expenses, I spend a couple thousand on electronics each year for tinkering.
I did not earn any income from this hobby until 2013. Two different people donated money at different times because they liked what the open-source software did and where it was going. The two people have since lost interest, but I continue onward.
I’m a W-2 employee in a different industry and make little income. I have debt out my eyeballs from school and a new home loan. I declared this money because I thought it was the proper thing to do. However, if it forces me to business income then I'm going to owe quite a bit.
All advice is very much appreciated.