The BizFilings blog covering business tips and trends.
Solo Ventures, Hobbies and Full-Time Enterprises
Published on Apr 21, 2011
Read 'Solo Ventures, Hobbies and Full-Time Enterprises' at 'Time to Start Up,' the small business blog by BizFilings.
One of the few positive trends to emerge from the recession has been the increase in entrepreneurial activity. This came about because of laid-off or unemployed professionals who took to forming a company as a means of returning to work.
A Kauffman Foundation study clarified this trend, as it found entrepreneurial activity to have risen during the downturn, while hiring among those new ventures declined. This distinction is important when considering whether or not a solo venture is a legitimate business or a personal hobby, as it will likely determine the tax obligations of the operation.
"The IRS will allow you to deduct your full losses against business income and you can use that net loss to offset your other sources of income. If the taxman decides that you are engaging in a hobby, you may only deduct certain itemized deductions," writes Angie Mohr in the San Francisco Chronicle.
Ultimately, there are many different factors the IRS considers in determining whether an endeavor is a business or a hobby. According to the source, such considerations include time and effort, profit potential, personal dependence on business income, management experience and other details.