What do you do for fun? Whether its photography, playing the guitar or collecting artwork, everyone has an activity they find enjoyable. Making YouTube videos is a popular hobby that’s been spreading like wildfire. Not only do YouTubers enjoy sharing their common interests, it’s an easy way to make money on the side. One of the big appeals is that YouTube lets users monetize their videos by placing advertisements on their uploaded content. For every thousand views the ad receives, you’ll receive a commission. The downside is that if your hobby earns you income, it needs to be reported on your tax return.
Hobby vs Business
When you participate in a hobby, you do it for the pure joy it gives you. It may earn you a few dollars here and there, but you aren’t relying on it as your main source of income. Businesses are the exact opposite. Priority number one is to make money. Some questions that will help you determine the difference between your hobby and a business are:
• Do you devote your time and effort into the activity with hopes of making money?
• Do you do depend on income from the activity to pay your bills?
• Did you change your method of operation to improve profitability?
• Do you have the knowledge needed to turn this activity into a successful business?
• Has a similar activity made you money in the past?
For more information on how the IRS distinguishes a hobby from a business, visit IRS.gov.
You can only deduct your hobby expenses up to the profits you’ve made from the hobby. If you spend $6,000 a year collecting baseball cards but never earn a dime from the hobby, you can’t claim any of those expenses on your tax return.
Miscellaneous itemized deductions
Hobby expenses can only be deducted as miscellaneous itemized deductions on your tax return. They must also exceed 2% of your adjusted gross income in order to qualify.