Hello, I am a pro bodybuilder. I paid a trainer to prepare me for a competition, but I was diagnosed with a medical condition, so I did not compete. Can I claim these expenses on my tax return?
The proper reporting of your expenses for income tax purposes will be based upon a determination of whether the bodybuilding activity is considered a business or a hobby. Generally speaking, a business activity is something you engage in to make a profit, and a hobby is performed for sport or recreation.
The IRS offers nine factors to consider when deciding whether an activity is a business or a hobby. This decision is based upon your actual facts and circumstances, and no one factor alone is decisive. The nine factors are as follows:
- Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
- Whether the time and effort you put into the activity indicate you intend to make it profitable.
- Whether you depend on income from the activity for your livelihood.
- Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
- Whether you change your methods of operation in an attempt to improve profitability.
- Whether you or your advisers have the knowledge needed to carry on the activity as a successful business.
- Whether you were successful in making a profit in similar activities in the past.
- Whether the activity makes a profit in some years and how much profit it makes.
- Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
If you determine that you have a “business activity,” all income and associated expenses would be reported on Form 1040 Schedule C, Profit or Loss from Business. If it is considered a hobby, you may be able to deduct the expenses if you itemize deductions and file Schedule A. For 2017, you can report hobby expenses up to the amount of any income earned for that year. You cannot deduct a net loss if your expenses exceeded your income. Further information can be found in IRS Publication 535, Business Expenses.
Also note, recent passed tax law has changed these rules for tax years starting in 2018, and you may no longer be able to deduct these expenses if the activity is a hobby. I recommend that you consult directly with a CPA to review this in further detail.
For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.
Answered by: Dominic T. Cutuli, CPA, is a principal with H2R CPA in Pittsburgh.