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Starting a New Hobby? These Tips Can Help You Understand the Tax Situation

Whether you pick up painting or cook new concoctions in your kitchen, starting a new hobby is always fun and a great avenue to learn something new. However, there are some important tax considerations when starting a new hobby, especially if you are considering turning your newfound passion into a business.

Taxpayers must report any income earned from hobbies, even if it does not involve a licensed business. While businesses should make a profit, hobbies are primarily recreation. The following nine factors can guide you in determining whether a hobby could also be considered a business, according to the IRS:

  • Whether you execute the activity in a businesslike manner and maintain complete and accurate books and records.
  • Whether you have personal motives in performing the activity.
  • Whether the time and effort you expend in the activity indicate that you intend to make it profitable.
  • Whether you depend on income from the activity for your livelihood.
  • Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
  • Whether you or your financial professional understand how to parlay the activity into a successful business.
  • Whether you successfully made a profit through similar activities in the past.
  • Whether the activity will make a profit in some years and how much profit it will make.
  • Whether you can profit from appreciating the assets used in the activity.

You can also deduct some of the expenses associated with your hobby. Within certain limits, taxpayers can typically deduct ordinary and necessary hobby expenses. An ordinary expense is common and accepted for the activity, while a necessary expense is appropriate.

*This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov6

Footnotes and Sources

  1. IRS.gov, November 15, 2023

Weekly Market Insights: Investors Anticipate Fed Rate Change

Stocks notched a solid gain last week in a mega-cap, tech-led rally bolstered by positive inflation news.

Dow 40,000

The week began quietly as market averages traded in a tight range, awaiting fresh inflation news.

On Tuesday, markets rose steadily throughout the day after digesting a mixed wholesale inflation report.1

The next day, a cooler-than-expected Consumer Price Index (CPI) report sparked a broad-based rally as the upbeat news raised investors’ hopes for a rate cut. The Nasdaq Composite and Standard & Poor’s 500 (which ended above 5300 for the first time) closed the day up 1.4 percent and 1.2 percent, respectively. Meanwhile, the bellwether 10-year Treasury yield fell to 4.35 percent.2,3

Investors took a break as the week ended, mostly yawning at mixed economic data. Notably, the Dow closed just above 40,000 on Friday.

Footnotes and Sources

  1. CNBC.com, May 14, 2024
  2. The Wall Street Journal, May 15, 2024
  3. CNBC.com, May 17, 2024

Are Social Security Benefits Taxable?

If you receive Social Security benefits, you may have to pay federal income tax on some of these benefits. Your payment will depend on your specific income and filing status.

To find out whether your Social Security benefits are taxable, if you are single, take half of the Social Security money you received throughout the year and add it to your other income, including pensions, wages, interest, dividends, and capital gains. If the total for an individual exceeds $25,000, part of your benefits may be taxable.

If you are married filing jointly, take half of the Social Security money you received throughout the year plus half of your spouse’s Social Security benefits; add both amounts to your combined household income. If the total is over $32,000, part of your benefits may be taxable.

The IRS’s website delineates the taxable percentage of benefits based on the above calculation. These percentages vary between 50% to 85% and depend on your filing status and income levels. For example, if you are filing as a single person with $25,000 to $34,000 income, 50% of your Social Security benefits may be taxable.

The Interactive Tax Assistant on IRS.gov can help you determine whether your Social Security benefits are taxable and, if so, by how much.

*This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov7

Footnotes and Sources

  1. The Wall Street Journal, May 10, 2024

Weekly Market Insights: Stocks Rise, Anticipating Rate Cut

Stocks notched a solid gain last week as rate-cut expectations paced the rally as the Q1 earnings season wound down.

Stocks Climb Steadily

Monday opened with stocks picking up where they left off the prior Friday. Stocks were still basking in the afterglow of fresh jobs data, which eased investor concerns of an overheating economy. That and reports of a possible Middle East ceasefire fueled Monday’s rally.1

Stocks hung out in a narrow trading band Tuesday and Wednesday, yawning at the sparse economic news and a handful of negative earnings results. By contrast, the Nasdaq edged lower over those two days.2,3

On Thursday, the S&P 500 closed above 5,200 for the first time since early April. The next day, stocks rallied, and the Dow clinched its eighth consecutive day of gains, the longest winning streak since December and its best weekly performance this year. Fresh data showed consumers continue to have inflation concerns for the year ahead, which was unsettling.4,5

Footnotes and Sources

  1. The Wall Street Journal, May 10, 2024
  2. The Wall Street Journal, May 7, 2024
  3. The Wall Street Journal, May 8, 2024
  4. CNBC.com, May 9, 2024
  5. The Wall Street Journal, May 10, 2024

Do You Need to Report Cash Payments?

If you receive a cash payment of over $10,000, you may be required to report it to the IRS. In this case, a cash payment includes U.S. or foreign currency and can also include cashier’s checks, bank drafts, traveler’s checks, or money orders.

In addition, cash payments to individuals can also include payments from companies, corporations, partnerships, or associations. For example, these could consist of payments from the following parties:

  • Dealers of jewelry, furniture, boats, aircraft, automobiles, art, rugs, and antiques
  • Pawnbrokers
  • Attorneys
  • Real estate brokers
  • Insurance companies
  • Travel agencies

This requirement refers to cash payments received as one lump sum, in two or more payments within 24 hours, as a single transaction within 12 months, or as part of two or more transactions within 12 months.

So, how do you report cash payments? Taxpayers should complete Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. You can file this form electronically or mail a copy to the IRS. You must submit Form 8300 within 15 days after receiving the cash payment.

*This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov6

Footnotes and Sources

6 IRS.gov, July 26, 2023

Weekly Market Insights: Volatility, Uncertainty Rule the Week for Markets

Stocks notched a solid gain last week, rallying behind upbeat earnings, a dovish Fed, and mixed economic data.

Stocks Pop, Drop, Then Rally

Markets began the week with an upward bump as positive news from some mega-cap tech companies outweighed disappointing updates from other tech names.

The tone quickly changed on Tuesday as higher-than-expected Q1 wage growth triggered inflation and interest-rate anxiety—just as the Federal Open Market Committee kicked off its third meeting of the year. Each of the three major averages dropped more than 1.5 percent on the last trading day of April.1

When the Fed announced it was holding rates steady on Wednesday, stocks initially rallied on the news, but sellers got the upper hand late in the trading session, and prices ended the day slightly down.2

On Thursday, stocks trended higher as more companies reported upbeat Q1 results. Then, on Friday, stocks pushed higher after the April jobs report indicated that unemployment ticked up and the economy slowed. The 175,000 jobs created in April represented slower growth than the over 300,000 added in March and less than the 240,000 economists expected. Some Fed watchers believe that the news bolstered chances that the Fed may adjust rates sooner rather than later.3

Footnotes and Sources

  1. The Wall Street Journal, May 3, 2024
  2. CNBC.com, May 1, 2024
  3. The Wall Street Journal, May 3, 2024

IRS Program Helps Seniors Prepare Taxes

The IRS has a Free File tool, which facilitates online tax preparation, direct deposits of refunds, and electronic filing choices, designed for taxpayers on a fixed budget, including seniors and retirees. Here is some information to know about the tool:

  • IRS Free File is at IRS.gov and features some significant names in the tax software provider world.
  • To use the tool, taxpayers can browse multiple offers.
  • The eligibility standards for Free File depend on the tax partner but are typically based on income, age, and state residency.
  • Free File has most of the necessary forms when filing your taxes. Even if you have a unique tax situation, you may still be able to use Free File.
  • Some Free File products are available in Spanish.
  • You can also search for credits and deductions in Free File.
  • Some providers in Free File also offer state return preparation. You can use the lookup tool in Free File to find the tax partner that might be appropriate for your state requirements.
  • Taxpayers can access Free File through computers, smartphones, or tablets.

*This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov6

Footnotes and Sources

6 IRS.gov, October 23, 2023

Stocks Bounce Back. Twice.

Last week opened with a rebound rally as investors breathed a sigh of relief that Middle East tensions had eased. The market rally extended into Tuesday, with investors cheering positive corporate earnings reports. By Tuesday’s market close, the S&P 500 had gained 2% for the week.1,2,3

But investor enthusiasm didn’t last, as midweek saw profit taking in all three averages. Rising bond yields threw a wet blanket on market momentum; at one point, the yield on the 10-year Treasury note rose more than 40 basis points from its low earlier in the week.4

On Thursday, markets slipped on two fresh pieces of economic data: a Gross Domestic Product (GDP) slowdown and higher consumer prices. But by midday, selling pressure slowed. Stocks pushed higher on Friday behind upbeat Q1 reports from two mega-cap tech stocks, helping the S&P 500 and the Nasdaq post their best week since November.5

Footnotes and Sources

  1. The Wall Street Journal, April 26, 2024
  2. CNBC.com, April 22, 2024
  3. CNBC.com, April 23, 2024
  4. CNBC.com, April 24, 2024
  5. The Wall Street Journal, April 25, 2024

Can you Claim the Child Tax Credit for Other Dependents?

Even if you cannot claim the child tax credit, you may be able to claim the credit for other dependents under your care. The IRS issues a maximum of $500 for each dependent who meets specific conditions.

These conditions include the following:

  • Dependents who are age 17 or older.
  • Dependents who have individual taxpayer identification numbers.
  • Dependent parents or other qualifying relatives supported by the taxpayer.
  • Dependents living with the taxpayer who are not related to the taxpayer.

The credit begins to phase out when the taxpayer’s income exceeds $200,000. This phaseout begins for married couples filing a joint tax return at $400,000.

Taxpayers may be able to claim this credit if the following are applicable:

  • They claim the person as a dependent on the taxpayer’s return.
  • They cannot use the dependent to claim the child tax credit or additional child tax credit.
  • The dependent is a U.S. citizen, national, or resident alien.

This dependent credit may also combine with the child and dependent care credit and the earned income credit.

*This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov7

Footnotes and Sources

  1. IRS.gov, October 23, 2023

Weekly Market Insights: Fed and Middle East Conflict Diminish Stocks

Stocks fell for a third straight week, as Fed Chair Jerome Powell’s mixed but upbeat message could not offset the anxiety caused by the Middle East conflict.

Stocks Retreat

Markets began the week rattled by further escalation in the Middle East over the weekend. A bit of good news punctuated an otherwise sour Monday, as a stronger-than-expected retail sales report showed consumers were spending despite rising inflation.1,2

On Tuesday, remarks from Fed Chair Jerome Powell indicated a shift in thinking—from being confident to not-so-confident about interest rate cuts in 2024. He said rates might need to stay higher until the Fed meets their 2% inflation target.3,4

On Friday, the markets saw further declines, but investors were somewhat reassured by the perception that Thursday’s retaliatory actions in the Middle East were restricted in scope.5

Footnotes and Sources

  1. The Wall Street Journal, April 19, 2024
  2. CNBC.com, April 15, 2024
  3. The Wall Street Journal, April 16, 2024
  4. CNBC.com, April 16, 2024
  5. CNBC.com, April 19, 2024