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Business on the Side? How to Win Your Tax Bill
Say you’re a real estate broker — but you’re learning about rehabbing houses in your spare time? Can you deduct the money that you spend learning about fixer-uppers from income from your full-time job as a broker?
To pay less on your taxes, you’ll need to prove that you spent the money that you want to deduct on a real business, not on a hobby unlikely to ever make a profit.
The Internal Revenue Service has a series of standards taxpayers need to meet, before they use the losses from a side business to offset other taxable income. For example, if you made money at your activities for three out of five years, then the IRS is likely to count that activity as a business. If not, taxpayers can use a number of factors to show that they are involved in a business — such as their professional expertise or keeping complete books and records.
A tax specialist can guide you through the process. In the meantime, here are some helpful guidelines from the journalists at CBS News.
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