If you are someone who likes to design pamphlets and you drive 20 miles every other day to get the paper you use from your closest Office Max, the gas that you spend in that tax year can be tax deductible, that is if you start a small business designing pamphlets. As a matter of fact, even that paper you buy from Office Max is tax deductible. The spaces in your house that you keep to store your paper and the home office space is also tax deductible. The value in owning a small business is immense.
For the IRS, the term "profit motive" says it all. By this, they are referring to the fact that the reason you started your own business was to make money and you intended to earn profits. All you need is profit motive to reduce your taxes by turning your personal expenditure into business expenditure. You don't even need to have made a profit that year to claim deductions for your business. Everyone recognizes that making a profit in a business for the first few years is hard. There is a Form 5213 that you can file to defer any challenges that the IRS makes for the next five years.
There are, however, some requirements that you must meet in order to meet the profit motive expectation defined by the IRS. First, you have to have some expertise in the field that you start the business in. That doesn't mean your business can't be something that started out as a hobby. The amount of time you spend in working at your business is also a factor in profit motive. In addition, the IRS is also interested in the amount of your gains and losses in the business and the partners that you have in this business. All of this might come up in an audit, especially if you don't keep all of these things in mind while you are working.
So if you have a hobby that you spend a lot of time doing, you can turn that into a small business. And that can help you save some money come tax season.
Following is a list of qualifications that must be met in order for your expenses to be considered business deductions:
