{"version":1,"type":"rich","provider_name":"Libsyn","provider_url":"https:\/\/www.libsyn.com","height":90,"width":600,"title":"Hobby vs. Business - Which Are You? - RD215","description":"Is your side gig a hobby or a business I had a conversation with a fellow designer recently who works full-time for an ad agency and periodically takes on small design projects on the side. He called it a hobby. That got me thinking, what is a hobby and does what he\u2019s doing qualify? Hobby vs. Business Standard disclaimer: I\u2019m not a lawyer, accountant, tax expert or business advisor. The following is solely my opinion. Hobby: A hobby is an activity done for enjoyment, typically during one\u2019s leisure time. A hobby encourages the acquisition of skills and knowledge in that area. Business: Business is the activity of making money by producing or selling products such as goods and services. Simply put, business is any activity or enterprise entered into for profit. By those definitions, any design work you do where you get paid should be considered a business venture. At least you would think. When does a hobby become a business? According to the IRS, a hobby is an activity that an individual pursues without the intent of generating a profit. \u201cIntent\u201d is the keyword here. Meaning it\u2019s ok to make money pursuing your creative hobbies as long as it wasn\u2019t your intent, to begin. For example, let\u2019s say you have a screen printing machine and print yourself graphic T-Shirts. If someone sees one of your shirts and offers you money to make one for them, it\u2019s still considered a hobby, because it wasn\u2019t your intent to sell the design or shirt when you created it. However, if you designed and printed the shirt with the hopes of selling more like it, then it\u2019s a business. An artist who paints for the joy of it, and sells the odd painting to cover the cost of supplies is considered a hobbyist. But as soon as that artist decides to showcase their paintings, in the hopes of selling them for a profit, it becomes a business. If you create something because you want to help a friend, a family member, your church, a local organization or charity you support or your kid\u2019s sports team, and they offer you money for your generosity, as long as you intended to help them and not of making a profit, then it\u2019s not a business dealing. However, if that friend, family member, church, organization or charity asks you to create something for them in exchange for payment of some kind, then your acceptance is based on the knowledge you will be making a profit. Therefore it\u2019s a business transaction. Why is the distinction between hobby vs. business important? The distinction between hobby vs. business is essential for tax purposes. Yup, blame it on the government. If you are making a profit from something, they want their cut. But that could be a good thing. If you are making money from your \u201chobby\u201d or \u201cside gig\u201d you should want the taxman to take a cut. Why? Because as a hobby, you can\u2019t deduct losses and expenses on your tax return. But once you\u2019re hobby is classified as a business, you are entitled to the same tax advantages other businesses enjoy. Including home business expenses or additional costs that don\u2019t typically apply to income from your day job. Who knows, declaring your hobby a business, may even end up saving you money on your taxes. Check with a professional. Rules may differ depending on where you live, so check with a professional in your area to see if your side gig or hobby qualifies as a business. Keep in mind; you have to be actively seeing to make a profit for what you do to be considered a business. But be careful. Even if you are actively seeking to make a profit, don\u2019t just declare what you\u2019re doing as a business without checking with a professional first. There are stiff penalties for claiming business expenses on your taxes if you don\u2019t qualify for them. What the IRS is looking for in declaring a venture a business. The IRS has a vague outline for determining the state of your earnings. However, here are some rules that may help you achieve business status with your hobby. You engage in your activity with continuity and regularity. You\u2019re taking actions to improve profitability. You keep accounting and business records. You consult professional advisors to help improve profitability. Officially declare yourself a business. The easiest way to get the IRS or any government tax agency to view what you do as a business is to make it official. Name and register your business. Open a business banking account Begin collecting sales tax if applicable Hire a CPA and other advisors. There are no guarantees the IRS or whatever taxing agency there is in your country will consider you a business. But if you officially register as one, chances are they\u2019ll agree with your assessment. Is your design business registered? Let me know by leaving a comment for this episode. Resource of the week Savvy Social School If you\u2019re looking for a simple, easy (and fun) way to use social media as a tool to grow your design business, the Savvy Social School takes you from wasting time to feel confident that you\u2019re making the right choice for you and your business. Savvy Social School is the BEST training and coaching resources for entrepreneurs wanting an online presence who are tired of GUESSING and STRESSING about social media. I\u2019ve been a member of the Savvy Social School for almost a year now, and it has helped me grow the social media presence for my business, which in turn has translated to paying clients. You can do the same. ","author_name":"Resourceful Designer: Strategies for running a graphic design business","author_url":"http:\/\/resourcefuldesigner.com","html":"