Hobby or Business? How to Tell

We get questions about this kind of thing often... is what I'm doing a hobby or a business? And what, if anything, can I deduct?

Below is more information from the IRS that answers those questions, and others. Of course, you're welcome to contact us at any time for more information, ideas and help with setting up a small business, or any other tax question you might have.

FROM THE IRS:

Many people enjoy hobbies that are also a source of income. From painting and pottery to scrapbooking and soapmaking, these activities can be sources of both fun and finances. Taxpayers who make money from a hobby must report that income on their tax return.

If someone has a business, they operate the business to make a profit. In contrast, people engage in a hobby for sport or recreation, not to make a profit. Taxpayers should consider nine factors when determining whether their activity is a business or a hobby. They should base their determination on all the facts and circumstances of their activity.

If a taxpayer receives income for an activity that they don’t carry out to make a profit, the expenses they pay for the activity are miscellaneous itemized deductions and can no longer be deducted. The taxpayer must still report the income they receive on Schedule 1, Form 1040, line 21.