What is a Business?

Many taxpayers assume they don’t own a business because they earn a small amount of money or didn’t bother to incorporate — this is not factually correct.

What is taxable income?

From the IRS’ perspective, money isn’t free. So, you pay tax on the money you earn whether it’s from a passive or active activity.

• Passive = stock ownership, interest income, rental real estate (with exceptions)
• Active = wages, self-employment income (with exceptions)

What does self-employed mean?

You're probably wondering if you started a business without even realizing it. Self-employment income can take on many forms — renting a room for short stays, mowing lawns, babysitting, dog walking, driving people around town, and so much more.

Pressed for time? Click to listen. 

What are self-employment tax deductions?

Depending on how you conduct your business, you can either deduct every eligible expense or limited expenses.

Here’s a general overview.

1. When money appears in your bank account or in your pocket, ask yourself — Is the money from a paycheck (ACH deposit or check)? If it's not wages, move on to the next question.
2. Did I earn the money as part of a charitable endeavor or for myself/my company? If it’s for yourself or your company, then you move on to the next question.
3. Am I earning money as a hobby/side job or is it my primary source of income? For a hobby or side gig, follow the hobby-loss rules; for your primary gig, follow the for-profit business rules.

TIP: Each situation is different, so consult with an accountant about your facts and circumstances.