Do you have a particular hobby you just can’t get enough of? Some part of your lifestyle that identifies you? Something that you’d be happy to spend more time (and more money) on? For most of us, there are several parts of our lives that really make us tick. Sometimes it’s hard to justify spending money on these sorts of hobbies even though it’s what we want to do. But if you can make your lifestyle into a business, you can make those expenses deductible — which, at the very least, makes these expenses more palatable.
Note that not every aspect of a lifestyle can be turned into a business, but with the availability of easy options for business creation online, you might be surprised at your options. Playing video games, gardening and much of the other things you do can be turned into a business. Excited? Here’s what you need to know to get started.
Take advantage of the perks
Now, actually starting up a business to replace your job or other income sources is great — but it isn’t entirely necessary to get the tax deductible perks. A small side business can meet the requirements necessary without being your main source of support. In the U.S, the IRS differentiates between hobbies and businesses primarily based on the income they bring in. If you can earn enough from your hobby to both offset the costs and turn at least a small profit, the IRS is typically willing to consider it a business. The IRS even gives new businesses a few years to start before requiring that you show more income coming in than expenses going out.
There’s a lot of flexibility in what might be considered a business, too. Maybe you’ve got a big garden where you grow food for your table. On the surface, it might seem that the only way you could turn a profit on gardening is by selling the produce from your garden. But the fact of the matter is that if you created a website about your garden, you would have the start of a business. You’d have to turn a profit on it eventually, of course — but with a little effort and some advertising that’s not out of the question. You’d also be able to deduct what you spend on your garden through taxes each year.
Taking this route isn’t necessarily easy, of course. To take a hobby and turn it into a business, even a small one, will require more time and effort than you’re already devoting to that hobby. It may even require you to invest more money. With a website about your hobby, for instance, you’d need to devote time to build traffic, find advertisers and plenty of other tasks that really have nothing to do with your hobby. It’s certainly not an approach that makes sense for everyone. But if you do want to take such an approach, you can often spend more time on your hobby (which is hopefully a plus) and even earn a little money.
Turning your lifestyle into a business
Taxes aren’t the only benefit of turning a hobby into a business. Tax deductions are nice, of course, but they don’t necessarily turn into the biggest possible savings for a business owner: it depends, in part, on just how expensive your hobby actually is.
But other benefits can also make starting a side business a good financial decision. Businesses can often get better pricing on purchases than individuals.
It depends on the particular hobby you have and how you want to make money, of course. If travelling is the part of your lifestyle you want to turn into a business, you could arrange tour groups that get you (as the organiser) a discounted rate on your hotel stays and other expenses. You could also put together groups of buyers for specific travel gear and buy directly from managers in order to get a lower price on your own purchases.
Businesses also have access to other benefits. For instance, many business credit cards have better perks for their account holders than personal credit cards, which can even include lower interest rates. While you shouldn’t use a business credit card for anything but business expenses, the perks can still make the card worthwhile. It’s important to consider all the factors involved with such a business card, of course, as well as to consider the fact that unless you do the paperwork to establish your business as something other than a sole proprietorship, your personal credit can be affected by a business credit card.
Tax deductions aren’t a reason to destroy your budget
Of course, if your finances are tight, it’s important to understand what you can truly afford to do with a business before you get started. If your budget doesn’t allow you to spend more money on your hobby than you already do and you don’t necessarily have the time to invest in building a business based off of your hobby, it may not be a good option. There are also some problems you can encounter along the way that mean that a business may not make sense for you.
It’s extremely easy for a new business owner to justify expenses to herself on the basis that they’re tax deductions, as they don’t really cost as much as they appear to. Such an approach is not only bad for your business but it can be devastating for your personal finances.
Even if you’ve set things up so that the business is officially paying for your hobby, it’s important to have a budget in place to make sure that your business doesn’t break the bank in the future.
However, if you’re willing to balance what you want for your lifestyle with a little time spent on a business, you can wind up with an income source you enjoy, as well as a few perks that make your personal finances a little easier to handle.
