annie40...
I'm self-employed, and very familiar with the IRS guidelines
for business and the self-employed.
It certainly CAN be considered a business for tax purposes,
and should be if your net income is greater than $400.
Since this activity is 24 hours/day, this precludes the
possibility that you are working at another job. You are
essentially self-employed. The instructions for
Schedule SE, for those who are self-employed, notes:
"You must file Schedule SE if:
Your net earnings from self-employment (see page SE-2) from
other than church employee income were $400 or more"
and
"You must pay SE tax if you had net earnings of $400 or more
as a self-employed person. If you are in business for yourself
or you are a farmer, you are self-employed."
http://www.irs.gov/instructions/i1040sse/ch01.html#d0e43
Self employment taxes are different than income taxes. As for
income taxes, the instructions for Form 1040 state that:
IF your filing status is Single, and you are under 65, and your
gross income was at least $8,200, you must file. If you are 65
or older, and your income was at least $9,450, you must file.
"Gross income means all income you received in the form of money,
goods, property, and services that is not exempt from tax..."
http://www.irs.gov/pub/irs-pdf/i1040.pdf
While your exemption and standard deduction will add up to the
$8200, and preclude the need for you to pay income tax IF the
amount you received for your services is less than that, you
will be required to pay self-employment taxes for any profit
greater than $400, which will be calculated on Schedule SE.
These taxes are the FICA and Social Security taxes that would
have been withheld from income earned from an employer, and
must be withheld from your income, as well.
Who must file, both for employed and self-employed individuals,
is further outlined on this page from the IRS site:
"You must file a tax return if you had net earnings from self
?employment of $400 or more. This is your total self-employment
income less the expenses paid in operating your trade or business,
multiplied by 92.35%. For more details, refer to Topic 554,
Self?Employment Tax."
http://www.irs.gov/taxtopics/tc351.html
Topic 554 - Self?Employment Tax:
http://www.irs.gov/taxtopics/tc554.html
If the monthly fee happens to add up to more than $8,200/year, or
$9,450 if you are 65 or older, it would be to your advantage to
file Form 1040 Schedule C for a business operating at your address
and using your name as the name of the business. This requires no
formal or legal paperwork such as incorporation. You simply file
the Schedule C. This allows you to deduct the expenses associated
with your activity, such as the cost of the meals you provide.
You may also be able to deduct a percentage of your mortgage and
utilities if the space you provide (when you said "providing room")
is used solely for the purpose of the service you are naming as
your business. With these deductions, your gross income may fall
below the amount requiring you to pay income tax, and limit your
obligation to only paying the Self-Employment tax.
The general guidelines for filing a Schedule C are:
"An activity qualifies as a business if your primary purpose for
engaging in the activity is for income or profit and you are
involved in the activity with continuity and regularity. For
example, a sporadic activity or a hobby does not qualify as
a business. To report income from a nonbusiness activity, see
the instructions for Form 1040, line 21."
http://www.irs.gov/instructions/i1040sc/ar01.html
The instructions for Form 1040, Line 21 include:
"Income from an activity not engaged in for profit. See Pub. 535."
Publication 535, 'Business Expenses', notes:
"In determining whether you are carrying on an activity for
profit, several factors are taken into account. No one factor
alone is decisive.
Among the factors to consider are whether:
- You carry on the activity in a businesslike manner,
- The time and effort you put into the activity indicate you
intend to make it profitable,
- You depend on the income for your livelihood,
- Your losses are due to circumstances beyond your control
(or are normal in the start-up phase of your type of business),
- You change your methods of operation in an attempt to improve
profitability,
- You (or your advisors) have the knowledge needed to carry on
the activity as a successful business,
- You were successful in making a profit in similar activities
in the past,
- The activity makes a profit in some years,
and
- You can expect to make a future profit from the appreciation
of the assets used in the activity."
There's more in this form about filing Form 5213 to postpone
the determination as to whether your activity is considered
profitable, for 5-7 years from when you began the activity.
You can download Publication 535 from the link coming up.
A good place to start, for those filing as a self-employed business
for the first time, is this resource center on the IRS site:
http://www.irs.gov/businesses/small/article/0,,id=115045,00.html
This page on 'Filing Requirements for Self-Employed Individuals'
summarizes what I've been discussing here:
http://www.irs.gov/businesses/small/article/0,,id=115043,00.html
So you'll need to file a Form 1040, Form 1040 Schedule C, and
Schedule SE. You can download Forms and Publications here:
http://www.irs.gov/formspubs/index.html
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