Do I have a hobby or a buisness?

Do you have a hobby or a business?  If the activity is done mainly for recreation or pleasure, it is a hobby.  However, there are other factors to consider when making the determination if you have a hobby or a business.  The IRS has 9 questions to use to make the determination:

• Is the activity carried out in a businesslike manner and with maintained complete, accurate books and records?
• Does the time and effort you put into the activity indicate you intend to make it profitable? Do you depend on income from the activity for your livelihood?
• Are the losses due to circumstances beyond your control (or are normal in the startup phase of your type of business)?
• Do you change your methods of operation in an attempt to improve profitability?
• Do you or your advisors have the knowledge needed to carry on the activity as a successful business?
• Were you successful in making a profit in similar activities in the past?
• Does the activity make a profit in some years and how much profit does it make?
• Do you expect to make a future profit from the appreciation of the assets used in the activity?

If you answer yes to those 9 questions, congratulations, you have a business!  You will file the income and expenses on Schedule C with your tax return.  

However, if you answer no to any of the questions, you have a hobby.  You must report the income from the hobby on your tax return.  Unfortunately with the TCJA, expenses are not deductible for hobbies until the year 2025.  

My advice is to take your hobby and turn it into a business.  This way you will be able to deduct your expenses and losses.  Just remember the 9 questions listed above and make it a legitimate business.

Candace Stevens, CEO/President of

Number Cruncher LLC

cstevens@numbercruncherllc.tax

www.numbercruncherllc.tax