Business income
Hi, everyone. I have a question about what qualifies as business income. During the tax year in question, I translated written materials for a nonprofit organization approximately a dozen times. For one of my assignments, I was offered and I accepted financial compensation. How should this income be reflected on my tax return? For context, I provided translation support to the nonprofit over a period of several years, both before and after the tax year in question, and the assignment mentioned above is the only one for which I was paid. I'm wondering whether the income should be reported on Schedule 1 or Schedule C.
The instructions for Schedule C explain that "[a]n 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." The instructions also say that "a sporadic activity, a not-for-profit activity, or a hobby does not qualify as a business."
Given that I provided translation support over a period of several years, it seems clear that I was involved in the activity with continuity and regularity. As to whether my primary purpose was for income or profit, I translated for the organization on a volunteer basis before and after completing the paid assignment, which I think supports the conclusion that my primary purpose was not for income or profit.
Am I correct that the income from the paid assignment should be reported on Schedule 1 instead of Schedule C?
Thank you in advance for your help!
Answers
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Hello
Thank you for joining our community. The main question is whether to report the income as self-employment or as hobby income. You are on the right path as this is income that should be reported in either of these two ways.
If you choose to consider this as hobby income (schedule 1 as other income), then you don't have the ability to reduce the income by claiming expenses incurred to generate the income. However, this will only raise your normal taxable income for tax purposes.
On the other hand, if you choose to consider this income as self-employment (Schedule C), then you have the opportunity to claim expenses reducing the gross income on the tax return. Another added benefit of showing the profit on Schedule C is that this income will add to your Social Security for future retirement. The drawback of reporting the income on the Schedule C is the self-employment tax that will add to what you need to pay on the tax return.
Either way, the IRS will be satisfied that you are claiming the compensation as income on your tax return. Here is an article that gives more information on this topic:
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