Georgian taxpayers like you have to follow a strict set of rules and guidelines in order to determine what sort of taxes you should be paying. If you are starting up a business, this can make your yearly taxes even more complex. For example, activities that you might consider hobbies may actually be businesses.
According to the U.S. Small Business Administration, the Internal Revenue Service has reported that there is up to $30 billion a year in unpaid taxes because of the improper deduction of hobby expenses. This is because not everyone follows the necessary guidelines when determining if something is a hobby or a business. It should be noted that any activity that is carried out with the expectation of earning a profit would actually be classified as a business rather than a hobby, which means that you should be deducting both necessary and ordinary expenses for those hobbies in regard to taxes.
Other things to look at include whether or not the activity earns profit over years, if methods of operation have ever been changed to increase income, or if you can live or depend on the income that you get from the activity. Additionally, even if you aren’t currently making a profit, your activity might be considered a business if you could potentially make a profit from it in the future. The general guideline is that an activity is for profit if it makes a profit in three of the last five tax years.
Sometimes, the line between hobby and business can be hard to define. This makes it important for you to understand where your activity stands so you can handle taxes appropriately.