Here's an 'example' that I'm familiar with that illustrates the difference between 'business' and 'hobby':
A friend of mine had a well paying job that he'd been doing for many years. He was also a pretty good weekend tournament bass fisherman. Doing that at a high level is VERY expensive. Boat, gas, gear, etc. really add up. But, he does occasionally win some prizes. Thus he has reportable 'income' from his hobby.
He's allowed to 'duduct' the expenses of his 'hobby' up to the point where he offsets his 'earnings' from it. But, since the value of his winning in most years does not exceed his 'expenses', he can't duduct the 'loss' incurred in his hobby from the income he earns in his 'real' job.
If, in an occasional year he actually makes a 'profit' from his hobby (he's won a couple of boats and such), he does have to report it as income and pay applicable taxes on it.
He's not using the money from his 'hobby' to pay his bills or other living expenses. He pays his withholding taxes and Social Securtity, etc. through his 'real' job. He doesn't have to report and/or pay quarterly withholdings on his 'hobby'.
The beauty of this is that he can do this for as long as he wants without having to show business growth or efforts at it.
Would work for a fly tyer? I don't know, you'd need to consult a tax expert to be sure.
Buddy
Last edited by Buddy Sanders; 02-20-2011 at 03:35 PM.
It Just Doesn't Matter....