hobby business

Are You Ready to Turn Your Hobby Into a Business?

Mikey Rox — Thu, 24 Apr 2014 08:36:22 +0000

Do you have a hobby you enjoy? This can be anything from painting to building furniture to playing video games. In other words, anything you do in your spare time to have fun. (See also: Awesome Money-Making Hobbies)

While some people are content with keeping their hobby a hobby, others get the bright idea of turning theirs into a side gig or business. They begin to wonder if there's a way to take their favorite activity and turn it into a money-making machine.

Before you make this big decision, it is imperative to consider the pros and cons. If you take the leap without thinking twice, you may find that you have killed your hobby and are now in over your head. (See also: The Worst Ways to Make Extra Money)

Can You Handle the Pressure of Turning Your Hobby Into a Business?

A hobby is supposed to be fun. A hobby is something you turn to when you are looking to relax and escape the stress of your everyday life. The second you turn this into a side gig, everything is going to change. Now, there is a lot of pressure on you to perform.

Let's look at the example of somebody who enjoys painting. When this is a hobby, you don't have any pressure to make the piece "marketable." You don't have to concern yourself with what others may think. In other words, you are painting because it is something you love.

Once you turn this into a business, however, everything changes.

Do you have a plan for selling the piece?
Can you work fast enough to make it worth your while?
What will you do if a customer is unsatisfied?

As you can see, there are many questions you need to answer. As a hobby, your only concern was the actual painting. Once it is a side gig, everything else is a concern.

Do You Have Enough Time?

A hobby doesn't require you to work a certain amount of hours. You don't answer to anybody but yourself. If you decide to take a day or week (or longer) away from your favorite activity, it really doesn't matter.

When you have a side business, there is no walking away, especially if you have customers who rely on you or orders you have to fulfill.

The big question is this: Do you have enough time in your day to handle your full-time job, personal life, and the side gig? If you bite off more than you can chew, you could find yourself strapped for time. You'll be making a few extra dollars each month, but you may find it coming at a cost, such as less time with your family or your other work suffering as a result. (See also: The Secret to Work Life Balance)

Are You Prepared for the Risk?

Starting a business, regardless of the size or industry, is a big risk. This is particularly true if it will cost you a lot of money to get up and running.

There is no denying the fact that a bigger risk comes with a bigger potential reward, but you must decide early on if you are willing to put yourself on the line. Are you OK with losing money if your move from hobby to business fails? Are you OK ith wasting a lot of time should things not work out?

Questions to Answer

At this point, you may be so scared about turning your hobby into a side gig that you never let this cross your mind again. But remember, it's not all bad. There are many people who've taken something they love and turned it into something that earns them a lot (or a little) money. (See also: 10 Great Home-Based Side Businesses)

By answering these questions, you may find it much easier to decide what to do next.

Do you enjoy your hobby so much that you wouldn't mind if it turned into a money-making business?
Would you shy away from your hobby in the future should your business flop?
Are you the type of person who can deal with the pressure of owning their own business?
Do you have the time to start a side business?
Will your side gig pose too much of a risk?

Now that you understand when you shouldn't make your hobby a side gig, you can decide which steps to take next. Tread softly as this is a decision that will impact your life on many different levels.

Have you turned a hobby into a side business? Please share your experience in comments!

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

10 Classes That Can Pay for Themselves

Jennifer Holder — Wed, 13 Jun 2012 10:24:15 +0000

Classes already help you grow as a person, but a lot of classes offer more than knowledge — they offer a way to make money in the long run, whether it be through resume-building skills or honing a particular crafty talent. Below is a list of 10 classes that can pay for themselves. But remember — you only get out of a class what you put into it, so expect to do a little grunt work. (See also: 10 Awesome Money-Making Hobbies)

1. Business Class

Small business incubators are popping up in cities across the country. Most are non-profits, there to help wannabe entrepreneurs figure out what they need to make their business idea work. Others are offered by a city or town, there to help the community grow. I’m currently taking a collaborative business class from Launch Chattanooga. Learning how to market my ideas and budget my money and time, as well as meeting my fellow community members, has already made the class well worth it.

2. Language Class

The ultimate benefit? Understanding half the people around you. Living in New York, I heard languages from all around the world, but I could never understand a word they said. While learning a language isn’t easy, it’s rewarding, and learning in a class environment gives you a chance to practice. Try to pick a language that could help you professionally. Do your research — if there is an international company in town, there are likely bilingual jobs available.

3. Cooking Class

If you’re in a relationship, this is a great date option. Not only do you get to hone your cooking skills, but you also get a chance to eat a meal prepared together. And of course, eating in is usually cheaper than dining out.

4. Exercise Class

The obvious advantages of an exercise class are a slimmer tummy, tighter muscles, etc., but an exercise class can also give you confidence in yourself. And classes are far better than DVDs, especially when it comes to complicated yoga moves. Additionally, doing a class with others gives you an opportunity to network and create lasting friendships. I have a ton of friends who have done CrossFit, and they hang out with their fellow class members on a regular basis.

5. Certification Class

From CPR to computer skills, a certification can go a long way on a resume. If anything, it shows that you’re a fast learner (especially since a lot of those classes move quickly), have the wherewithal to accomplish personal goals and tasks, and, especially in the case of computer certifications, can use a variety of programs. And who knows, maybe one day certificate programs will replace college degrees.

6. Writing Class

When I was considering a major for college, all advisors told me the same thing — my major didn’t matter as long as I learned how to communicate. They were right. The more I move through society and consider a “career,” the only thing that matters is the fact that I can communicate well. Since college, I’ve taken a writing class, and it not only gave me a renewed sense of purpose for my writing career, but also helped me develop my communication skills just a little more. These classes help you express yourself, and when it comes down to it, expressing yourself is one of the most important things to know how to do.

7. Photography Class

While you might think that stunning picture that you took of a mountain proves you have skills, unfortunately, it’s probably just your camera and its nifty automatic settings. Why not take a class and learn how to use that camera at night (something I struggle with — everything always comes out so blurry) and what terms like aperture mean? You’ll walk away with an appreciation of all things beautiful and probably some original pictures of family and friends.

8. Improv Class

Improv classes are the perfect way to open up and become more personable in everyday situations. I’ve seen it with my own eyes — people who are naturally shy slowly come alive through improvisation. Improv also generally has a fantastic, supportive community. While some might be doing it to get ahead, most are just having fun. By the end of a few classes, you’ll be more able to talk to strangers, network at work functions and, most importantly, laugh.

9. Craft Class

What you get out of this is a craft (duh). And crafting skills. And craftiness. Okay, maybe not the last one, but you will walk away from this class with a tangible product, whether it be pottery or painting or sewing. There are a lot of painting and drinking classes nowadays too, which is perfect for a grown-up birthday party.

10. Resume Writing Class

Writing a resume is, in my opinion, one of the most important skills a person can possess. You may have worked your butt off at a job and know everything there is to know, but if you don’t know how to express it on a resume, you’ll never get called for an interview. I used to suffer from this problem, unfortunately. I ended up using my friend’s knowledge of “good” resumes, and once she fixed mine up, I got calls non-stop. If you know you can do the job, you should get the job — don’t sell yourself short on your resume.

What are some classes you’ve reaped more than just knowledge from?

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This article is from Jennifer Holder of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Audit-Proof Your Hobby Business

Barbara Weltman — Fri, 12 Aug 2011 18:22:53 +0000

Link:

http://www.openforum.com/articles/how-to-audit-proof-your-hobby-business

People who start a business as a sideline job are called “second job entrepreneurs” by the Bureau of Labor Statistics. Nobody knows exactly how many people fall into this category, but there are likely millions. Second-job entrepreneurs do so to earn extra money or because they enjoy the work. But a sideline business costs can introduce some difficult tax situations.

Audit Risk

If you have a sideline business that’s separate from your job or main business and your expenses exceed the income from your sideline activity, you face a special tax challenge from the IRS under the “hobby loss rule.” This rule limits write-offs from the sideline activity.

While there’s no absolute way to avoid an audit of your sideline activity, there are things you can do to minimize your chances of being selected for audit as well as ensuring a happy outcome if you are audited. Understand what the rule is and what you can do to escape its application to your sideline activity.

Impact of the Hobby Loss Rule

The tax law says that if you engage in an activity with no profit motive, it is considered to be a hobby. As such, expenses from the activity in excess of income from the activity cannot be deducted. They are lost and gone forever. There’s more.

Expenses (up to the amount of income) are deductible only as miscellaneous itemized deductions. This means they are deductible (1) only if you itemize; and (2) only if they exceed 2% of your adjusted gross income.
Expenses that are claimed as a deduction are not allowed for alternative minimum tax (AMT) purposes. The AMT is a tax affecting about four million taxpayers, and anyone with a hobby activity may find themselves subject to the tax, or paying more because of their activity.
You cannot deduct your medical insurance as an adjustment to gross income even though the coverage relates to your sideline activity. The insurance is only deductible as an itemized medical expense.

Profit Motive

The hobby loss rule does not apply if you have a reasonable expectation of making a profit from the activity. Clearly, you don’t have to give a guarantee to the IRS or anyone else that you’ll be successful; in business there are no guarantees. But you can’t operate solely for personal reasons, without regard to financial considerations.

Unfortunately, there’s no bright line for determining whether you have a profit motive. Your word alone isn’t good enough. There are two ways to show the IRS you mean business:

Rely on a presumption. If you can show that you’re profitable in three out of five years (two of five years for certain horse-related activities), the IRS will assume you had a profit motive all along, even though you had some loss years. To use this presumption, you have to file a form (IRS Form 5213) for the first year of your business. This delays any IRS audit until the end of five years.
Demonstrate motive. Instead of asking that the IRS not examine you for five years, simply operate as if you have a profit motive. Then, if you’re ever selected for audit, you’ll show that your activity is a business and not just a hobby.

Audit Protection

Here are some ways to protect yourself:

Form a C corporation. A regular corporation is not subject to the hobby loss rule; all other types of business entities, including Schedule C businesses, limited liability companies, and S corporations, need to be concerned about the hobby loss rule if they’re not profitable.
Don’t rely on the presumption. Filing Form 5213 guarantees that the IRS will examine your returns for all of the years in the presumption period, so don’t use it.
Operate your activity like you mean business. This means keeping good books and records and maintaining a separate business bank account and credit card (apart from your personal finances or those of any other business). Have a business plan. Apply analytics to your performance. Work with professionals and continually try to achieve or improve profitability. No single factor shows a profit motive, but taken together they can demonstrate that you’re running a business and not a hobby if you are selected for audit.

Bottom Line

If you’re up for some “light reading,” you can view the factors that the IRS uses to determine a profit motive by checking the IRS guide. This is the guide used by IRS auditors for hobby loss challenges. Also work with a CPA or other tax advisor to help you stay off the IRS’ radar or to be successful if the IRS challenges your deductions.

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This article is from Barbara Weltman of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: