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  • Writer's pictureMarie Demene

Hobby Or Business: Here’s What To Know About That Side Hustle

Sometimes the line between having a hobby and running a business can be confusing, but knowing the difference is important because hobbies and businesses are treated differently when it’s time to file a tax return. The biggest difference between the two is that businesses operate to make a profit while hobbies are for pleasure or recreation.

Whether someone is having fun with a hobby or running a business, if they accept more than $600 for goods and services using online marketplaces or payment apps, they could receive a Form 1099-K. Profits from the sale of goods, including personal items and services, is taxable income that must be reported on tax returns.

People should consider a few other things when deciding whether their project is a hobby or business. No single thing is the deciding factor. Taxpayers should review all of the factors to make a good decision.

How taxpayers can decide if it’s a hobby or business

These questions can help taxpayers decide whether they have a hobby or business:

  • Do they carry out the activity in a businesslike manner and keep complete and accurate books and records?

  • Does the time and effort they put into the activity show they intend to make a profit?

  • Does the activity make a profit in some years – if so, how much profit does it make?

  • Can they expect to profit from the appreciation of the assets used in the activity?

  • Do they depend on income from the activity for their livelihood?

  • Are any losses due to circumstances beyond their control, or are the losses normal for the startup phase of their type of business?

  • Do they change their methods of operation to improve profitability?

  • Do the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business?



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