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Comments on this website are informational in nature and are not intended to
be interpreted as specific tax advice.   The comments cannot be used to avoid taxes under the Internal Revenue Code or the regulations of other tax authorities. Furthermore, this website is not intended, and should not be interpreted, to support the promotion or marketing of any tax avoidance schemes.

 

Date last modified:
01/26/17
 

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".