Converting your current hobby (or finding a new one) into a business that you do while RVing can save you -- or earn you -- a significant sum. CPA and tax expert Marty Shenkman explains why and how.
Turning Your Hobby into a Business
by Martin Shenkman and Judy Justice
A business approach offers a possible solution to an RVer's cash needs. I can hear some saying, "I want to just play in my RV." That is fine, but for those that realize the benefits of having the RV for playing and for paying -- keep reading.
With all the financial turmoil of the past few years, few of us feel as secure as we once did (and in fact, most of us aren't). The economy still has a long way to go to regain its footing, so more bumps in the financial road are likely.
If playing in your RV is your goal, play away, but play intelligently. For many of us, that intelligent playing will mean using our existing skills and/or hobbies (or perhaps a new one) to earn a few bucks or to offset expenses we'd otherwise have to pay while playing in our RV.
Use your hobby as a method of feeding your hobby. Let's say for example that you collect pocket watches. This can be done by buying or selling pocket watches at rally swap meets. Whatever income you earn can help defray the costs of your hobby/collecting. If you can convert what was a $1,200 a year expense into a break even from your trades and sales, that $1,200 in savings goes straight to the bottom line of your budget. Is $1,200 significant? If you deposit $1,200 each year for 15 years and earned 7% on your investment, in 15 years you will have accumulated over $32,000.
Add to that the savings in campground fees of say $30/night for two months per year if you use your handyman skills in trade for free hookups, and you'll add another $1,800 a year to your savings. That's $3,000/year that at 7% for 15 years that would grow to almost $81,000 in 15 years.
If you've been working at a 9-5 job for decades and don't think you have any hobbies worthy of making money, think again. Think of what you enjoy doing. Make a list of leisure activities. Next, consider how each of those activities you enjoy can be used to make money, or at least save expenses. At these stages, don't even consider practicality. That comes next. The initial goal is to first brainstorm all the ideas possible, without letting reality get in the way. Once you've listed a score of ideas or activities and how they could make money, it is time to inject a dose of reality and start to think which ones are practical for you. Narrow your list down. When you've pared the list to perhaps three or four likely candidates, draw up a simple business plan, perhaps just a page of bullet points for each.
Now pick the activity that is most likely to be practical for you. Prepare a budget. Reading online can be an inexpensive way to research and learn about the practicalities of turning it - whether actual or one you'd be willing to start - into a business or at least an expense offset.
It is important to know the difference between a hobby and a business. In another article in this series, Avoid the Hobby Loss Tax Deduction Limits we discussed the tax rules governing hobby losses. If you've already read that discussion, you're not only familiar with the rules, but the limits on getting tax write offs out of your sideline activities.
Once you've made a decision to turn a pastime into a side business, try to be very conscious of business formalities. If you want your hobby/business to be taken seriously by customers and suppliers, as well as respected by the IRS, you need to kick up the formality:
• Consider setting up a limited liability company to own the business.
• Set up a separate business checking account.
• Create a logo or hire a graphics designer to do so.
• Set up a website.
Make the transition from a hobby to a business real and it will help your new working while RVing business venture succeed.
Martin M. Shenkman, CPA, Esq. sponsors a free legal website LawEasy.com.
Martin is an RVer with a special cause. He is an avid fundraiser for the National Multiple Sclerosis Society and The Michael J. Fox Foundation For Parkinson's Research. Besides RV business tax and legal information, he will share some of his RVing and fundraising experiences with us.
Judy Justice has an MBA in Management and an MBA in Financial Management. She teaches online and operates a business with her husband while RV'ing.
Caution: This article and other columns can never substitute for professional legal, tax, and accounting guidance. These columns can provide only broad general advice, which may not apply to your situation. The rules differ substantially from state to state. Tax, business, and other laws change rapidly over time so there can be no assurance that the information in this column is current. The best approach is to review the ideas in this article with your own CPA and attorney. The application of general tax and legal principles to some of the unique facts presented by RV working is particularly complex and there is little specific law providing guidance to rely upon.