Business or personal income?

[DIY_Tax_Person]

I have some audio albums that generate income (iTune, Amazon sales, radio royalties, click ad revenue from a website). I am not incorporated. The income is payable to me personally. I receive 1099-MISC forms for this income. I tiny amount of revenue was paid to my DBA, but that is me personally doing business as a fictitious name. So, when using TurboTax, do I need to enter these numbers as 'business' income or can I enter it as 'personal' income? Does it matter as far as raising/lowing my taxes? Is there some sort of self-employment tax that I may be unnecessarily paying by entering these numbers as 'business' income?

[Mike9241]

a question you'll have to decide - is this a business or hobby?

The IRS created a nine-point hobby vs. business test to determine whether your activity is a hobby or business:

1. Do you treat the activity like a business by maintaining accounting records?
2. Do you put in the time and effort appropriate to turn a profit?
3. Do you depend on the activity’s income for your livelihood?
4. Are the losses sustained in the activity beyond your control? Did the losses happen during the activity’s startup phase?
5. Have you changed your operations to try to achieve or improve profitability?
6. Do you or your advisors have the knowledge to run a successful business?
7. Have you profited from running similar businesses in the past?
8. Has the activity ever made a profit and, if so, how much?
9. Can you reasonably expect the activity to earn a profit from the appreciation of assets used in the activity?

The questions root out whether you’re running the activity like a business or as a serendipitous way to earn extra income. If you’re answering “yes” to all of these questions, the activity is more than likely a business. If you’re scoring any lower, you should get in touch with a tax accountant for help.

Businesses and hobbies receive different tax treatment, so it’s important how you approach a money-earning activity.

.

as a hobby the income is taxable - but not subject to self-employment tax (report on schedule1) but none of your related expenses are deductible

as a business the income is taxable but you get to deduct business-related expenses so you only pay taxes on the net. if the net exceeds $400 you'll also owe self-employment tax. the reporting is done on Schedule C

[DIY_Tax_Person]

How do I determine how much in self-employment tax I'm paying on a hypothetical 5k in business income? My adjusted gross income for each year is low. 25k to 50k. 

[VolvoGirl]

You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400). The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare (FICA). So you get social security credit for it when you retire.  

The SE tax is already included in your tax due or reduced your refund. It is on the 1040 Schedule 2 line 4 which goes to 1040 line 23. The SE tax is in addition to your regular income tax on the net profit.

[VolvoGirl]

So if you have a 5,000 Net Profit on Schedule C for self employment after expenses the self employment tax would be about $706.45.

5,000 x .9235 x .153