Month: January 2017

With life expectancies increasing and income growth languishing, many retirees are seeking to make some extra cash from home-based businesses. A home-based business may provide extra funds needed to make a retirement more comfortable, but it can also present pitfalls.

If, for example, you have a hobby, such as photography or making crafts, and family and friends have suggested you sell the items you make, you could consider selling them online.

Especially early on, you probably won’t make much money. However, you will incur business expenses, such as computer equipment and office supplies. If you decide to deduct these expenses at tax time, you may realize a business loss. But can you then use this loss to offset most, or even all, of your other income?

It’s recommended you consult a professional on tax regulations before you set up your business. Generally, if what you’re doing is considered a hobby, you can deduct legitimate expenses only up to the amount of the income the hobby generates – not from other income.

Hobby vs. business

The Internal Revenue Service (IRS) differentiates between a hobby and a business. The IRS says there are nine factors to consider, including the time and effort you put into the activity and whether you depend on the income for your livelihood. Typically, the IRS presumes an activity is carried on for profit if it made money in at least three of the past five tax years, including the current year (although that can differ for certain activities, such as animal training and breeding).

Your best bet is to keep clear and detailed records of what you make and spend, and talk to a professional first if you’re considering deducting expenses from a home-based business.

Because, as pleasant as making money from a hobby may be, you don’t want to end up on the wrong side of tax laws.

Every life stage brings new financial mistakes that could jeopardize retirement. Here’s what to guard against as you move through the decades:

Twenties: Not investing. Unfortunately, many individuals who are just starting their careers fail to invest or avoid taking considered risks when they’re in a position to absorb them. One idea: target-date fund options start out with riskier allocations that gradually become more conservative.

Thirties: Overwhelmed. The 30s is the decade of big commitments, such as getting married, having children, and settling down. However wonderful, these commitments can lead to unaffordable mortgages and credit-card debt. Focus on living within your means.

Forties: Misjudging expenses. In their 40s, many are halfway through their working lives, but still face major expenses, such as significant home repairs and kids’ college costs. Avoid withdrawing from retirement accounts early, and work to pay off the mortgage.

Fifties: Failing to catch up. When they reach their 50s, many people realize they haven’t saved enough for retirement. According to current life expectancy statistics, the retirement phase can last forty or more years. Many also may have lifestyles that aren’t sustainable in retirement. This decade is the time to plan ahead – decide how you want to live, how much money you’ll need, and how to obtain it.

Sixties and beyond: Not getting help. As assets grow, so often do the complexities. Some individuals may need additional help planning and executing those plans. Your advisor, who is up to date and who also knows your situation, can give you that support.