Reporting Business Income Or Loss

If you work for yourself — either full-time or part-time — report your income and expenses on Schedule C. Self-employment income includes income:

  • From side jobs
  • Reported to you on a Form 1099-MISC

Since you’re self-employed:

  • You can deduct your ordinary and necessary business expenses on Schedule C.
  • You get Social Security and Medicare coverage by paying self-employment tax. This applies if your net self-employment earnings are $400 or more.

Hobby-loss rules

If you make a profit for three out of the last five years, the IRS assumes you’re engaged in an activity to make a profit. If so, you can deduct losses from the activity. However, if an activity isn’t for profit, you can only deduct expenses up to the amount of your hobby income. Expenses more than the income are nondeductible losses. To learn more, see the Hobby Income tax tip.

The IRS considers these factors when deciding if your activity is a business or a hobby:

  • Manner that you conduct the activity
  • Expertise of you and your adviser
  • Time and effort you used to conduct the activity
  • Expectation that assets used in the activity might appreciate in value
  • Your success in conducting other similar or dissimilar activities
  • Your history of income or losses in regard to the activity
  • Amount of occasional profits you earned
  • Your financial status
  • If the activity has elements of personal pleasure or recreation

To learn more about business income and losses, see Publication 334: Tax Guide for Small Business at www.irs.gov.

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