Monthly Bulletin
Date August 2022 | Issue 2022.7
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Hobby or Business


Most people will never turn a profit from their hobby. However, hobbyists should be aware that if they pursue their hobby to earn income, it may also be a business.
Is the activity a business? 

The most important thing to know when trying to determine if an activity is a business is that:
·  A business is pursued with continuity and regularity and
· the primary purpose for engaging in a business is income or profit.

Other things to consider when determining if an activity is business include:
·   Is the activity conducted in a businesslike manner (business plan, separate bank account)?
· How much time and effort does the taxpayer put into the activity?
·  Does the taxpayer depend on income from the activity for their livelihood?
· Are any losses due to circumstances beyond the taxpayer's control or normal for the startup
phase of their type of business?
· Has the taxpayer changed methods of operation to improve the activity's profitability?
· Do the taxpayer and their advisers have the knowledge needed to carry out the activity as a successful business?
·   Has the taxpayer been successful in making a profit in similar activities in the past?
·  Does the activity make a profit in some years and how much profit it makes?
·   Can the taxpayer expect to make a profit from the appreciation of the assets used in the activity?

Is the activity a hobby? Generally, a hobby is an activity that a person pursues because they enjoy it and with no intention of making a profit. However, even if not operated with a profit motive, hobbies can be a source of income.

For tax purposes, anyone who earns income from a hobby must report that income on their tax return. However, unlike business expenses, hobby expenses that would otherwise be allowed are not currently deductible. This is because such expenses are "miscellaneous itemized deductions," which aren't allowed through 2025.
DONATE CAREFULLY

Criminals prey on individuals by soliciting donations for fake charities. People should always be suspicious of unsolicited contact. Scammers often contact their possible victim by telephone, social media, email or in person.
People donating to charity should make sure their money is going to a reputable organization.
  • Thieves may pose as a representative of a charity to ask for money or private information from well-intentioned taxpayers.
  • Scammers may set up bogus websites using names that sound like real charities. When a taxpayer searches for a charity online, they find the fake website or social media page, instead.
  • Donors can use the Tax Exempt Organization Search to find or verify qualified charities. Donations to these real charities may be tax deductible.
  • Taxpayers should always give by check or credit card to have a record of the donation. NEVER donate by money order or certified check.
  • Donors shouldn’t give out personal financial information to anyone who asks for money. This includes things like Social Security numbers, credit card information, bank account numbers, and passwords.
Investors Turn to I Bonds Amid Rising Inflation

Low-risk investments offered by the U.S. government such as Series I savings bonds have grown in popularity as a strategy to combat inflation. This is a look at how I bonds are structured and treated for tax purposes.

  • Background. Series I bonds are provided by the Treasury Department and are nonmarketable, meaning they're not traded on a secondary market. Since the bonds are backed by the government, they can't lose value. While I bonds yield lower returns compared with other types of bonds, they are considered safer investments and have become more attractive in recent months, as I bonds are protected against inflation. As "zero-coupon bonds," the bondholder earns interest on interest rather than being paid out over time. The bonds can be redeemed after 12 months and grow in value for up to 30 years. However, if redeemed in the first five years, the previous three months of interest is forfeited.

  • Interest rates. Composite, or "earning," rates for I bonds are calculated by combining two interest rates. A fixed rate determined at the time when the bond is purchased is locked in for the lifetime of the bond and doesn't change. Treasury updates the fixed rate every six months on the first business days of May and November. The inflation rate, the other component of the composite rate, is tied to changes to the Consumer Price Index, meaning the rates increase with inflation. While the inflation rates are also announced at the same times as fixed rates, inflation rate changes are applied every six months starting with the initial issue date. For example, if a taxpayer purchases an I bond in August, the new inflation rate announced in November will be applied in February. The current composite rate, in effect through October 31, is 9.62%.

  • Tax and reporting. Earned interest from I bonds are exempt from state and local tax, but not federal tax. There is an exception if a taxpayer sells a bond back to the government and uses the proceeds to pay for qualified higher education expenses at eligible institutions in the same calendar year. Taxpayers have two tax methods to choose from. The bonds can be taxed under the cash method by deferring tax until they are redeemed. Alternatively, tax can be paid based on the interest earned over a year through the accrual method. Interest from I bonds is reported on Schedule B of Form 1040 using. According to TreasuryDirect, the department's online platform for buying U.S. securities, most taxpayers choose to defer reporting interest, "putting it off until they are filing a federal income tax return for the year in which they receive what the bond is worth including the interest." However, some taxpayers may want to report the interest every year, such as if the savings bond is in a child's name. A summary of transactions resulting in interest income will be furnished to a taxpayer on Form 1099-INT.

  • How to buy. A taxpayer can purchase up to $10,000 in electronic I bonds annually using TreasuryDirect. To create an account, a taxpayer provides basic identifying information, including their Social Security number. After creating a password, caption, and reminder, a onetime code is sent via email or text to register the user's device. Once the account is created and a bank account designated, a taxpayer can buy bonds, with a minimum of $25. There are options for one-off purchases and scheduled purposes. Bonds can be set to be purchased at a particular frequency or at specified dates. Paper I bonds are also available, but only if a taxpayer uses their income tax refund to buy them, according to the IRS. By submitting a Form 8888, Allocation of Refund (Including Savings Bond Purchases), a taxpayer can opt to allocate all or a portion of their return. Bonds purchased this way must be bought in increments of $50, and the annual limit for paper I bonds is $5,000. A taxpayer can gift these bonds to someone else using Form 8888, but gifts are counted toward the purchaser's annual limit. No TreasuryDirect account or bank information is needed with this method.
Upcoming Due Dates

August 15
  • Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in July.
  • Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in July.

September 12   
  • Employees – who work for tips. If you received $20 or more in tips during August, report them to your employer. You can use Form 4070.

September 15   
  • Individuals – Make a payment of your 2022 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment date for estimated tax in 2022.
  • Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in August.
  • Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in August.
  • S Corporations – File a 2021 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you timely requested an automatic 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1.
  • Partnerships – File a 2021 calendar year return (Form 1065). This due date applies only if you were given an additional 6-month extension. Provide each partner with a copy of Schedule K1 (Form 1065) or a substitute Schedule K1.
  • Corporations – Deposit the third installment of estimated income tax for 2022. A worksheet, Form 1120-W, is available to help you make an estimate of your tax for the year.