By Jean Kruse / Guest Column
In my last article, I explained how anyone can get free and confidential mentoring and advice from a SCORE volunteer by going to the website.
Well, wouldn’t you know it, immediately after I submitted that article, the SCORE website, www.score.org, made a massive change. Therefore, I feel obligated to revise my prior explanation.
The new website is much easier to navigate. The first words that seem to jump right at you suggest that to “build your business with free business advice,” you should click on “Get Started.” At that point you have many options as to whether you want to meet with a mentor in person, by phone or by email.
Other options on the home page are to “Take a Workshop,” “Browse the Library” or view some “Success Stories.” I clicked on “Browse the Library” where there are several pages with about 11 different business articles on each page. These library articles include a wide variety of topics include about operating a restaurant, websites and an article, “Beginners’ Considerations on How to Price Your Product.”
In both the library and the workshops, you can narrow your search by business stages, topics, format, entrepreneur type or industry.
Two articles that interested me were: “Is Your Hobby Ready to Become a
Business?” and “Nuts and Bolts: Turn Your Hobby in To a Business.” That reminded me of the questions I frequently get about hobby losses when I teach a free workshop for SCORE titled “Tax Deductions for Small Businesses” (usually scheduled in January at the Marion Library).
Photography is one type of business that may start out as a hobby and turn into a business. Cooking/baking is another hobby that SCORE clients frequently want to pursue because the client states that “all my friends believe I am so talented as a chef or baker that I should definitely go into that business.”
My co-counselor, the last time we spoke to such a person, asked the client if she had ever asked her friends or relatives how much they would be willing to pay for her to bake or make a meal for them? In other words, is there a viable market for your product or service or are your friends simply thanking you for the free food by complimenting you?
Last month I read about a tax court case in which the business person won in a suit brought by the IRS. Her business was braiding hair from a booth she rented in the mall. The business never had a profit and she did close it when her lease term expired. She won because she acted in a businesslike manner, she kept good financial records and she did market her service. In other words, she really considered this “hobby” was her business. And the tax court believed her so her losses were deductible.
One of my SCORE clients several years ago was a photographer. She called the IRS who told her it was a hobby and her expenses were not deductible. Had she contacted SCORE prior to making the call to the IRS, I would have given her a totally different answer.
Many new businesses have losses in their first few years so showing a loss does not always make the business a hobby. The key is to do all the things that successful businesses do, such as have a business plan, have a separate business bank account, market the business, have a website, keep business and personal finances completely separate, have receipts for business expenses and invoices to customers.
A photographer can certainly take pictures of his family, but if he pays for prints, he should clearly show that the business did not pay for printing personal photos.
SCORE volunteers provide services for entrepreneurs and existing businesses. Click on “Get Free Local Mentoring” on www.scorecr.org or receive mentoring via email from any SCORE volunteer in the United States by clicking on “Get Started” at www.score.org.
Jean Kruse is a SCORE counselor and SCORE Iowa district president. She operated her own CPA firm for 13 years and in 1988, joined RSM McGladrey, a national firm, where she provided accounting and tax services to small business.