Differentiate Between a Hobby and a Side Hustle
Do you regularly earn money with it? Then you may have to deal with the tax authorities. You must arrange that properly because that can save you money. Or let us do that for you.
Hobby as a Source of Income?
Is your hobby slowly becoming more than a hobby? Do you even regularly earn money with it? The tax authorities will usually quickly consider that there is income, and tax should be levied! Then, a hobby as a source of income is within reach.
You will then become a “result-enjoyer” or an entrepreneur.
Are you an entrepreneur or not? It is an essential question for every self-employed person. And the answer to that question has significant financial implications. If you are an entrepreneur, you are entitled to all kinds of advantageous taxes.
You will then receive obligations, but certainly, as an entrepreneur, also tax benefits.
Source of Income?
If the tax authorities believe you should pay tax, there must be a source of income. That is the case if:
- There is an organization of capital and labor
- Your activities take place in economic traffic
- You aim to take advantage of your activities
- You can expect sustainable profit
That is not the case if your activities are only in the hobby or family sphere. Therefore, do not give in too quickly if your hobby is regarded as a source of income.
Hobby or Source of Income
Selling unnecessary stuff on marktplaats.nl is the most accessible side income. Can you go about your business undisturbed, or do you have to report to the tax authorities?
As soon as the income from your hobby is structurally higher than your costs, the tax authorities will usually state that there is a source of income. The proceeds are then taxed, and you may have to start charging VAT on your sales!
Example one
You sell your stuff on a marketplace or a flea market. These are incidental revenues from selling items not explicitly purchased for sale. It is not a source of income for tax purposes.
Example two
You have a serious hobby, and you spend a lot of time and money on it. You regularly buy stuff for your hobby and sell things that are duplicated or in which you are no longer interested. Due to your expertise, you occasionally recognize a “bargain,” and you usually sell it for a profit.
Your hobby regularly brings in something, but you also incur many costs. The result is negative or modest. The income is too untaxed, and the prices are not deductible.
Example three
You are an art history teacher with exceptional knowledge of antiques. In your spare time, you often visit free markets and the like. You also spend your holidays visiting well-known markets, even abroad.
At first, finding bargains for your home was your hobby. But now, you no longer have room for that. Instead, you buy attractively priced antique objects all year round. Thanks to your expertise, you know the sales channels to sell those objects again at a profit.
This hobby has become a source of income. Therefore, you must state the result in your tax return.
Tip: Start-Up Costs of a Profitable Hobby
Do you have a hobby that got out of hand? Can structural revenues soon be expected that the tax authorities will regard as a source of income? Then, carefully register all start-up costs and save receipts and invoices.
In the first year as an entrepreneur, you may deduct losses from the start-up phase of your company. The start-up phase is five years before the start year as an entrepreneur.
Entrepreneur or Results-Seeker
As soon as the tax authorities state that your hobby has become a source of income, you must pay income tax on the result. It makes a lot of difference whether the tax authorities see you as an entrepreneur or a profit-seeker.
If there is no entrepreneurship but your secondary activities are profitable, you will enjoy “income from other work.” The tax authorities will then know you as a “result-enjoyer.”
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