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Tax Question: Yoga Business vs Hobby

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  • Tax Question: Yoga Business vs Hobby

    Hello everyone,

    I have a random (nonmedical) tax question that I was hoping someone would have some insights on. Since graduating residency, I've had some free time on my hands and have been teaching private yoga classes for cash. I have made almost no money on this and don't really ever intend to (maybe $100 in 2016 that I didn't report on my taxes and another $100-$200 so far in 2017). I have, however, spent a significant amount of money in 2017 on yoga education/workshops (close to $4,000). Would it be worth it to declare myself an independent contractor and report the income to take the deductions or would that just be asking for trouble from the IRS?

    Thank you!

    Lara

  • #2
    I think (but don't quote me on it), that you can take deductions up to 3 years via the IRS for businesses. If at 3 years you still are not turning a profit it is determined a hobby....

     

    So in that case I would ask:

    1) Do you ever have plans to make more then a few $100?

    2) Even if you make a few $100 why not report it so you can deduct the losses- i.e. cost of training.

     

    Other thoughts?

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    • #3
      There is no hard and fast rule, but the IRS does want you to be in pursuit of profits. Per the IRS "An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses)" (emphasis added). However, taxpayers who have had years of losses have won in court by proving they truly were seeking profits but were just unable to get there in five years. As is often the case, it depends upon facts and circumstances.

      The rationale is - why would you continue running a business that continues to cost you money when you would be more profitable by just doing nothing? In your case and based upon what you stated, it appears to me to be a hobby. Note that if you have profitable years, you are still required to report the income.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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