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FAMILY LAW ARTICLES

July 31, 2020
Is It a Business, Job, or Hobby?

Understanding how to categorize your business (business, job, or hobby) can make a big difference in family law issues. For example, does that business produce income? Is that income enough to pay bills and contribute to the household? The answers to those questions will play a significant role in financial dealings regarding alimony, child support, and other types of family law issues. But the answers are also more complicated than they might seem. Here’s what to know.

Categorization Isn’t Always Easy

Determining the difference between business, job, or hobby is accessible in some cases. For example, someone who builds model trains in the basement and occasionally sells them has a hobby. Someone operating a multi-million dollar company has a business. But what about all the gray areas in the middle? In most cases, it’s not that easy to decide how something is categorized. Maybe it doesn’t make much money yet, or it started as a hobby and grew.

Consider someone who mows lawns and does landscaping for a living. They may have mowers and weed eaters and all kinds of garden tools, but they may also get paid from a company they contract. They’re doing a job. But if they break away and form an LLC and hire more people to mow more lawns, they’re running a business. What about the person who mows a few extra lawns on the weekends but has a full-time job doing something else during the week? That person has a hobby.

Those types of issues are complex, and mishandling them can get people into problems. That’s especially true for legitimately self-employed people. Maybe they have an unconventional way of making money, but they’re operating a business if they’re selling a good or service and paying their bills with the proceeds. Unless, of course, they’re working for someone else — in which case it may be a job, but not a business.

Gross Receipts and Tax Filings Offer Clues

To help decide, legal professionals often consider the income the person is making, how well that income is producing, and how the person is filing taxes. If they have business licenses and are pointing as self-employed, that’s a more compelling argument for operating a business. They may be getting paid with 1099 from their clients or have other means of receiving tax information. Do they have employees working for them? That’s another big clue about their status.

Tax status isn’t the only thing that can tell someone whether they have a hobby, job, or business, but it’s a large part of what the courts would consider. Hobbies typically don’t make money that would show up as part of a tax return. Jobs are often employer-based, and the person would generally have a W2 income. But when someone has a business, they may be self-employed or receive 1099s instead. Looking at the profits and including those earnings on their tax return can help with the designation.

Reach out to us at Hartley Lamas Et Al today, and let us help you work through family law issues. 

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