Hobby v Business


Today TaxMama® hears from Susan in the TaxQuips Forum, with an interesting twist.  “I am an analyst with a high-tech firm and I teach one course a year at the University Extension in our area. While the course topic is related to my field, I don’t consider myself to be “in the business” of teaching. I have no expenses related to teaching the course (not even mileage, I commute by bike). Can I consider this to be hobby income so I don’t pay self-employment taxes on the income?”

Ask TaxMama

Dear Susan,

Bill, the TaxMan from Boston says – If the school issues you a 1099-MISC I can almost guarantee you, the amount they paid you will be reflected in Box 7 (Nonemployee Compensation). The IRS will assuredly be looking for a Schedule C to report that income on your return; and you would definitely have earned income subject to SE tax if you have some kind of written agreement/contract with the school. I have had this squabble with many clients who want to put it to Line 21 of the Form 1040 to avoid the SE tax.

TaxMama adds – That’s an interesting interpretation. But it is work. And it is pure profit. And, as Bill points out, the IRS will be looking for a Schedule SE, since the income is reported as non-employee compensation.

If you want to pick a fight with the IRS, try treating it as hobby income and take the case to the Tax Court to see how the Court interprets your point of view. Take it seriously and be diligent in your defense – and you just might win. Who knows, it could be fun!

But…I think that’s rather a long shot.

And remember, you can find answers to all kinds of questions about hobbies, work, and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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