Posted on July 7, 2013
Written by Avner Polatsek | @AvnerPolatsek
A common question we receive is: Can I claim business expenses for my hobby?
While it’s tempting to call your hobby a business because of all of those great business expense tax write-offs, the process is a little trickier than simply filing certain tax forms.
The main benefit of considering your hobby as a for-profit-endeavour is that the CRA will allow you to claim business-related expenses and if these expenses are more than your business income, you can claim a loss. Anything from your mortgage to your car insurance might qualify as a business expense and a loss can reduce the taxes you pay from other income sources.
Because of this potential tax advantage, people try to push their luck and call their personal hobby a business to get a tax break, but never intend to actually make a profit.
You can probably guess that the CRA doesn’t look too kindly on this.
Currently, we are seeing a huge rise in entrepreneurship, as many people want to create their own jobs out of their existing passions. This is great for many reasons, but we want to ensure that you’re covered for tax time.
Our number one tip for people turning their hobby into a business is to keep spectacular records. When your hobbies make money, you need to start treating them like a business and reap the rewards of all of the deductions that can come along with them!
If you need any help determining whether or not your hobby can be classified as a business, contact us. For Americans living in Canada, there are extra IRS considerations when filing your taxes as a business. We specialize both US and Canadian taxes and would be happy to assist you.