Tax Tips for Hobbies that Earn Income

Millions of people enjoy hobbies such as stamp or coin collecting, craft making, and horse breeding, but the IRS may also consider them a source of income. As such, if you engage in a hobby that provides a source of income, you must report that income on your tax return; however, taxpayers (especially business owners) should be aware that the way income from hobbies is reported is different from how you report income from a business. For example, there are special rules and limits for deductions you can claim for a hobby. Read more

Short-Term Rental of Personal Residence

Renting out your home through services like Airbnb or VBRO can be income tax-free, but consider the caveats.

There is an IRS provision which allows individuals to rent their personal residences for fewer than 15 days per year without reporting the income or expenses on their tax return. However, there are other practical considerations to take into account before deciding to rent out your spare bedroom:

1. Q: Are there special laws or filing requirements for short-term rentals in my city/county?

A: Probably. Each city has their own laws for short-term rentals. In order to rent out your space, San Francisco requires you to first register as a business and pay a licensing  tax, in addition to remitting transient occupancy tax (TOT).

A new issue that has surfaced recently is whether personal property tax can be levied on artwork, decorations, appliances, and other wares in homes that have been converted to short-term rental properties. The Board of Equalization is considering this issue.

New in 2016, San Francisco is requiring all businesses (including short-term rentals) which collect TOT to file Form 571-R, Business Apartment Statement, to report the assets used in the rental for the purpose of levying personal property tax. It should be pointed out, though, that the tax is relatively small (1.1826% in 2016 which would equate to $118 on $10,000 of assessed property value). The city estimated that an average one bedroom apartment would have $7,500 worth of taxable furnishings. Read more

Do You Qualify for the Home Office Deduction?

If you use part of your home for business, you may be able to deduct expenses for the business use of your home, provided you meet certain IRS requirements.

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

• as your principal place of business, or
• as a place to meet or deal with patients, clients or customers in the normal course of your business, or
• in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.

2. For certain storage use, rental use or daycare-facility use, you are required to use the property regularly but not exclusively.

3. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

5. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.

If you’re not sure whether you qualify for the home office deduction, please contact the office. Help is only a phone call away.

Deducting Moving Expenses

If you’ve moved–or are planning to move–this year to start a new job you may be able to deduct certain moving-related expenses on your tax return. You may also be able to deduct these expenses even if you kept the same job but moved to a different location.

1. Expenses must be close to the time you start work. Generally, you can consider moving expenses that you incurred within one year of the date you first report to work at a new job location. Read more

Tax-Free Savings for College

According to a recent study published by the Federal Reserve Bank of San Francisco, researchers found that over a lifetime, the average U.S. college graduate will earn at least $800,000 more than the average high school graduate–even after taking into consideration the cost of college tuition and the four years of lost wages it entails. Despite this, most people still feel that a college education is worth the investment.

That said, however, the need to set money aside for their child’s education often weighs heavily on parents. Fortunately, there are two savings plans available to help parents save money as well as provide certain tax benefits. Let’s take a closer look.

The two most popular college savings programs are the Qualified Tuition Programs (QTPs) or Coverdell Education Savings Accounts (ESAs). Whichever one you choose, try to start when your child is young. The sooner you begin saving, the less money you will have to put away each year.

Example: Suppose you have one child, age six months, and you estimate that you’ll need $120,000 to finance his college education 18 years from now. If you start putting away money immediately, you’ll need to save $3,500 per year for 18 years (assuming an after-tax return of 7 percent). On the other hand, if you put off saving until your son is six years old, you’ll have to save almost double that amount every year for 12 years.

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