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Legally:- when is a hobby a business?

Discussion in 'Band Management [BG]' started by Pbassred, Apr 13, 2010.

  1. For the purposes of motor insurance - when does a hobby turn into a business? I sometimes play out for money but I don't actually MAKE money. It might pay for a rehersal, but thats about it. However could that ever be construed as a business in the legal sence?
  2. the standard here is a reasonable expectation of making a profit....i believe that the revenooers will allow a loss for the first three years......the us tax code is far more biz friendly than ours and gear can be depreciated and written off faster....ymmv
  3. In the UK tax is simple.
    1/ How much did you make.
    2/ Send it.

    However I was actually thinking of the legal definition of a business rather than Tax.
  4. tycobb73


    Jul 23, 2006
    Grand Rapids MI
    You have to have the expectation of making a profit and treating it as a business. this can be done by opening a second bank account, keeping good records, etc. Although there is no stated number of years, if your business doesn't make money after a few years the IRS my do an audit and reclassify it as a hobby.
  5. MNAirHead

    MNAirHead Supporting Member

    you really want to show a profit of a buck to offset losses.. you can carry losses (mileage etc) forward

    check into the 3 out of 5 years rulings.
  6. Rick Auricchio

    Rick Auricchio Registered Bass Offender

    From the irs.gov web page:

    "The following factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:

    Does the time and effort put into the activity indicate an intention to make a profit?
    Do you depend on income from the activity?
    If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
    Have you changed methods of operation to improve profitability?
    Do you have the knowledge needed to carry on the activity as a successful business?
    Have you made a profit in similar activities in the past?
    Does the activity make a profit in some years?
    Do you expect to make a profit in the future from the appreciation of assets used in the activity?"
  7. tycobb73


    Jul 23, 2006
    Grand Rapids MI
    That's when the IRS may start looking but it doesn't nesseccarily mean it will automaticly be labeled a hobby. I know businesses that have lost for more than 5 years straight and the IRS has not audited them or recliassfied them. If the intent is there, the IRS will let it slide.
  8. MNAirHead

    MNAirHead Supporting Member

    Understood.. I get audited every year (10# tax return).. they always abide by the bare miniumum rules.
  9. 3tsb


    Nov 17, 2009
  10. D.A.R.K.

    D.A.R.K. Supporting Member

    Aug 20, 2003
    i run a business on the side, for those extra odd audio gigs and my band expenses. i deduct all my bass gear, pro sound gear (my main cash gig), a portion of my home (studio) and portion of vehicle/phone/utilities etc.
    where i am registered (fairfax county), if i make less than 10k a year profit, i don't have to file quarterly... i always make that happen
    by keeping an eye on what's coming in and what i'm spending.
    i have a great accountant, too.
    the little business always shows a little profit, but has been great at knocking us down a tax bracket in the past.... and is an ultimate excuse for gas (unfortunately).
    my wife does the same with her painting (she has a studio and sells enough to make it worth writing off expenses).
    so- a hobby is a business when you do commercial work and profit from it.
  11. Ed Fuqua

    Ed Fuqua

    Dec 13, 1999
    Chuck Sher publishes my book, WALKING BASSICS:The Fundamentals of Jazz Bass Playing.
    1. He's a Brit so it really DOESN'T MATTER what the Internal Revenue Service of the United States thinks.

    2. He's not asking about TAXATION, he's asking about insurance classification.

    However since he hasn't been very clear about what he actually wants to know, it's a little hard to answer a non-question. My assumption is that you are asking about recouping a loss due to THEFT or ACCIDENT from/in a motor vehicle. The question they are going to ask is "What was your instrument doing in the vehicle?" And if the answer to that question is "I was on my way to/from a gig or paid rehearsal." then that will be classified as a business loss and if you don't have commercial insurance (or a rider) they won't pay for your instrument. If you say "I was on my way to a friend's house and we were going to hang out a play a little music." and the investigators can show that you have
    1. declared income as a musician
    2. advertised musical performances at commercial establishments
    3.have marketed yourself as a musician
    4. etc etc
    then they are going to classify it as a commercial loss

    But the bottom line is - talk to your freaking insurance agent. They KNOW what's gonna make it and what ain't and if you are uncomfortable with the cost you have to be comfortable with the risk.
  12. tycobb73


    Jul 23, 2006
    Grand Rapids MI
    Doh, I automaticly went to taxes. In the US if it is used to derrive income, it will be classifed as business. My insurance lady who is a friend told me I'd have a hard time claiming the PA in case of fire because it'd be pretty obvious its used to make money at the bars. Even harder if soneone owns it and its at your house. They will interview enough people to find out the truth.
  13. Iggy Pop appears in TV commercials for a well known Car Insurance company over here and they would not normally touch him with a Barge Pole!!. This is because in Britain, your occupation has a huge bearing on your car insurance premium. Musicans are considered to be bad risks, so much so that most insurance companies will not insure you!!, you have to go with specialist insurers and they charge!!. So it is tempting to put down your day job as your occupation (or lie). However, if you have an accident and the insurance company decides you were "working" as a musician, and they have you down as a computer programmer - YOU ARE NOT INSURED - and, as well as not paying out, driving a car in Britain without a minimum of 3rd party insurance cover is a criminal offence.

    A trumpet player I once knew lost his license for a year when he was pulled by the police @ 3:00am and his insurance company thought he was a milkman by trade (a common moonlight!!).

    So where does the hobby end and the job start?? - I don't know, you could ask the Musicians Union, they might know.
  14. singlemalt

    singlemalt Supporting Member

    Dec 15, 2007
    White Salmon, WA
    The things I miss not having a TV!
  15. JLP


    Mar 15, 2008
    The IRS will let some go longer than others, but once they start auditing you it goes on for years. At least that's how it went for me. It kinda depends on the monies involved too. Smaller amounts don't seem to matter as much.
  16. DrewinHouston

    DrewinHouston Not currently practicing Gold Supporting Member

    Apr 20, 2009
    Houston Heights, Texas
    Disclosure: I am not a great bass player
    My definition is a business is something that you quit doing when they quit paying you.
  17. Ed Fuqua

    Ed Fuqua

    Dec 13, 1999
    Chuck Sher publishes my book, WALKING BASSICS:The Fundamentals of Jazz Bass Playing.
    When was the last time the IRS audited a British subject?
  18. Seriously guys, the OP was asking a serious question for us Brits - if you do the odd gig once in a while - as I do now - do you have to insure your car as a musician?. How many gigs a month does the hobby that also paid beer + cigarette + petrol money (when I was a student) become your job (when my insurance company flatly refused to have any more to do with me!.)

    As I said in my post, in the UK, not having insurance for your car is a criminal offence - you will lose your driving license if they catch you, and driving around in the middle of the night you are asking to get pulled by the law - "Just a routine check Sir, would you mind opening the boot (trunk)?". If you lie to your insurance company to get a cheaper rate, and they find out, you are not insured (as we all know, all they need is a reason to weasle out of things) and probably out of work until you get your license back.
  19. UncleFluffy


    Mar 8, 2009
    Head Tinkerer, The Flufflab
    Well, on one hand there's quite a few of us here in the US, but on the other "British Subject" status was almost completely eliminated in 1981. So I'd guess maybe about 30 years ago...? ;)

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