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Date last modified:
01/11/10
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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:
-
Is there an intention to make a profit?
-
Is the activity operated in a business-like manner
(advertising, office space, licensing, etc.)?
-
Have the methods of operation been changed or modified
to improve profitability?
-
Does the entrepreneur 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? Has
a profit been made from similar activities in which the entrepreneur was
involved?
-
Does the entrepreneur 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".
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