What Would the IRS Classify As a: Business vs Hobby

It’s not uncommon for passion projects to start generating income—maybe you bake on weekends, sell custom t-shirts online, or take photos for friends and family. At some point, though, the IRS wants to know: is this still just a hobby, or are you actually running a business? And that distinction matters. Why? Because it affects how you file your taxes, what deductions you can claim, and how your income is reported. But don’t worry—you’re not alone if this feels a bit strange. The truth is, there’s no single checklist that determines the answer.

A hobby is something you do for fun, with no real expectation of earning money from it. A business, on the other hand, is typically started with the goal of making a profit. Sometimes, though, what begins as a personal passion—like crafting, photography, or baking—can start to bring in income. That’s when things get a little tricky. Figuring out whether your hobby has evolved into a business can be confusing, but it’s an important distinction—especially when it comes to taxes.

To help simplify things, the IRS has established factors taxpayers must consider when determining whether their activity is a business or hobby.

Here are Just some Factors That are Considered:

• The taxpayer carries out activity in a businesslike manner and maintains complete and accurate books and records

• The taxpayer puts time and effort into the activity to show they intend to make it profitable

• The taxpayer depends on income from the activity for their livelihood

• The taxpayer has personal motives for carrying out the activity such as general enjoyment or relaxation

Every aspect, detail, and circumstance related to the activity must be taken into account, with no single factor carrying more weight than the others.

For more information please visit : https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax-purposes