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IRS CIRCULAR 230 NOTICE:
 To ensure compliance with requirements imposed by the IRS, we inform you that statements on this website, that could be construed as federal tax advice, are not intended or written to be used and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or regulations of other  governmental taxing authorities or agencies. Furthermore, this website is not intended or written to support the promotion or marketing of any tax schemes.
 

Date last modified: 10/25/11
 

Hobby or Business?

The IRS offers guidance regarding whether an activity is a hobby or a true business endeavor.  Tax-wise they are treated differently.  An entrepreneur should consider the following questions:

• Do I intend to make a profit?

• Am I operating in a business-like manner (advertising, office space, licensing, etc.)?

• Have I changed or modified the methods of operation to improve profitability?

• Do I have the knowledge, or access to knowledge, necessary to operate the activity as a successful business?

• Has the activity made a profit in the past?  Have I made a profit from other, similar activities in which I have been involved?

• Do I depend on income from the activity?
   

Hobby ventures report all revenue on tax form 1040 as "Other Income".  Expenses can be claimed up to the amount of revenue reported and are recorded on Schedule A, Itemized Deductions, under "Job Expenses and Certain Miscellaneous Deductions".