Small Business Financials

If your hobby earns you income, the IRS wants to know about it. But how do you report hobby income and how does it differ from small business income? Is one better than the other when it comes to filing taxes? Why is it important to know the difference? Knowing the differences between hobby income and business income is essential because it determines what kind of taxes you must pay and what deductions you can take. What is the tax difference between hobby and business? For tax purposes, the main difference between hobby income and business income is what deductions you can take. Let’s look at the tax implications for both sources of income. What are the tax implications for a business? Your business income is subject to income tax, as well as a 15.3 percent self-employment tax (to cover Medicare and Social Security) if you’re self-employed. To help offset your taxable income, you can take business tax deductions for qualified business expenses — like startup costs, internet...

Your small business is your baby and choosing the right name for it is a big deal. But what happens when you need to change your business name for whatever reason? Here’s how to prepare and what to expect when you decide your business name needs an upgrade. Can you change the name of an existing business? Yes, you can! Changing the name of your business isn’t always easy, but in some cases, it’s necessary. Here are a few good reasons why you might want to change your business name: Rebranding – Whether you purchased a business from someone else or your business has naturally evolved beyond its original title, sometimes a name change is necessary to keep up with your business identity and brand goals. In this case, a DBA may be a good option for you (we’ll discuss this more in-depth below). Upscaling – Are you a sole proprietor considering converting to an official corporation or LLC? If so, a name change might be in order. Depending on your circumstances, it could be as simpl...

If you’re a college athlete profiting from your name, image, and likeness (NIL), your tax situation can be a complicated topic. Sometimes it’s hard to know where to start — that’s why we’ve put together a list of seven tips to help you prepare for your next tax season. 1. Get in touch with the experts. If you’re in the dark about how NIL income might affect your taxes, financial aid, and more, you’re not alone. This is new territory for everyone — students, schools, and even the IRS. NIL compensation is taxable income. Because of this, you’ll need to report this income on your FAFSA, potentially impacting your eligibility for need-based financial aid packages. Before signing any NIL deals, it would be wise to contact your school’s financial aid office for answers on how this type of income could impact different kinds of financial aid, such as scholarships or Federal Pell Grants. How certain scholarships might be affected by NIL income is entirely dependent on the institution and...

In the past, NCAA rules prohibited college athletes from profiting from their name, image, and likeness (NIL). But in 2021, that changed. As a student-athlete, you now have the opportunity to earn NIL income, opening the door to exciting endorsement deals and profitable partnerships. Just remember — Uncle Sam wants his cut of these profits, too. Before you rush into signing any NIL deals, it’s important to know the tax implications of this kind of income. Knowing what to expect ahead of time will prepare you for the next tax year and eliminate any unpleasant surprises when filing your tax return. What is NIL income? We’ll start off with the basics. NIL is a form of endorsement income where businesses or brands offer student athletes compensation for the use of their name, image, or likeness. This can include many things, from making appearances and signing autographs to social media partnerships and merchandise deals. How you are paid for your NIL can vary greatly, meaning every ...

Back-to-school shopping can put a serious dent in your bank account. In fact, parents plan to spend close to $700 on supplies this year according to a survey conducted by the National Retail Federation. Before you run to the store to start shopping, read these eight savings tricks to help you keep more of your hard-earned money. 1. Do a little back-to-school shopping at a time When you decide it’s time to purchase school supplies, don’t run to the store and grab everything all at once. Many retailers rotate deals throughout the week, which means you’ll likely score better back-to-school shopping deals if you take multiple trips. 2. Don’t forget about the rebates No doubt about it, rebates are great. It’s incredibly comforting to know even more savings are coming your way as you leave the store. That is if the rebate paperwork actually gets submitted once you get home. To ensure you take full advantage of any back-to-school shopping rebates, complete the paperwork and send it i...

If the new 1099-K reporting thresholds have you confused as an eBay seller, you’re not alone. But don’t worry — eBay and TaxAct have partnered up to help you separate fact from fiction. Below we’ll address some common misconceptions you might have heard about these changes and the truth about how your taxes could be affected. Misconception 1: This is a new tax that I will have to pay on my profits. The truth: This year’s change is not a new tax imposed on online sellers but a new reporting requirement for eBay and other online marketplaces. Any income derived from a sale has always been reportable income for eBay sellers. Previously, you would not have received a Form 1099-K from eBay unless you hit 200 transactions and $20,000 in gross payments annually. In 2022, the IRS lowered this threshold. Now eBay and other marketplaces must report gross sales that equal or exceed $600 on a Form 1099-K. Due to these changes, many sellers who have not received a Form 1099-K before will be...

For many people, passive income sounds like the dream. After all, who doesn’t want to earn extra income on autopilot? Especially in 2022, as we are all dealing with the effects of high inflation rates. Let’s look at what society considers to be passive income, how to get started earning passive income, and how much work it actually takes to maintain passive income streams. Passive income explained When you hear the term “passive income,” you’re probably envisioning an effortless side hustle or investment opportunity that you can use to “get rich quick” or obtain financial freedom. While it’s true that passive income is a great way to pad your salary and make extra money with minimal effort, it’s important to set realistic expectations. There is no “one size fits all” approach when it comes to choosing which income streams work for you. In the beginning, many passive income streams require a lot of upfront work or a significant monetary investment (or both) before you can sit back...

You’ve heard about the new IRS reporting thresholds for Form 1099-K that went into effect this year, but you may have some follow-up questions about how it applies to you. Let’s look at some common concerns we see from online sellers and how to handle some unique situations, like pricing and selling inherited items. You only owe income tax on the net profits you make from a sale. To determine your profits, you need to keep track of each item’s sale price and any other expenses related to the sale. How to calculate your taxable income from an online sale If you are a casual seller and you sell a personal item for more than you originally paid, the profit you make is considered a capital gain. Capital gains are taxable income and must be reported on your tax return using Schedule D. To determine your taxable gains when selling personal assets, you will need this formula: Sale Price (what you sold the item for) – Cost Basis (what you paid for the product + any fees associated wi...

If you sell items online, you’ve probably heard about new IRS reporting thresholds that went into effect this year. These new requirements have caused some confusion for sellers on eBay and other online marketplaces. To help keep sellers informed, TaxAct ® and eBay have partnered to help you understand these tax changes and what they will mean for the tax returns you’ll file for tax year 2022. Recap of the IRS reporting changes Prior to 2022, eBay and other online payment platforms were not required to report transactions to the IRS until you hit an annual threshold of 200 transactions and $20,000 in gross payments. Beginning Jan. 1, 2022, these thresholds dropped significantly. With the change in these requirements, platforms like eBay must now report payments totaling $600 or more in a calendar year, with no transaction minimum. What eBay is doing to help online sellers Though you will receive your Form 1099-K from eBay, it’s crucial to remember that eBay and other onli...

High inflation got your stress levels up? Here are some savings and investment strategies you can use as an inflation hedge to protect your money’s value as prices soar. Inflation calculator Calculate the spending power of $ in Year 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Compared to Year 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 19...

If making money with minimal effort is a financial goal of yours, passive income just might be the answer. But what exactly counts as a passive activity from a tax standpoint? Let’s look at the different ways the IRS says you can earn passive activity income and how it affects your taxes. What is passive activity income and why does it matter? The term “passive income” often brings to mind side hustles touted by influencers as the road to financial freedom. These passive income opportunities are often presented as effortless ways to “get rich quick” or make some extra cash. On the more technical side, the IRS has strict rules for what qualifies as a stream of passive activity income. These can fall into one of two categories: Trade or business activities in which you don’t materially participate during the year Rental activities, even if you do materially participate in them (unless you are a real estate professional) Knowing how to distinguish your passive activity income a...