If you change the way you report your small business LLC, from a business to a hobby, you won't be able to claim a loss, so you'll likely pay more in income taxes. The IRS doesn't allow you to deduct hobby expenses directly from hobby income.
Per IRS article Hobby or Business? IRS Offers Tips to Decide:
- Limits on Hobby Expenses: Generally, taxpayers can only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than its income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.
- How to Deduct Hobby Expenses: Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type. See Publication 535 for the rules about how to claim them on Schedule A, Itemized Deductions.
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