hobby – Minding My Business https://www.mindingmybusiness.black Budgeting, Building Credit, Positioning Yourself Financially Sun, 26 Nov 2023 23:49:30 +0000 en-US hourly 1 https://wordpress.org/?v=7.0 https://www.mindingmybusiness.black/wp-content/uploads/2021/09/cropped-logo_color-32x32.png hobby – Minding My Business https://www.mindingmybusiness.black 32 32 Tax Tip – Hobbie or Business https://www.mindingmybusiness.black/tax-tip-hobbie-or-business/ https://www.mindingmybusiness.black/tax-tip-hobbie-or-business/#respond Mon, 15 May 2023 13:02:04 +0000 https://www.mindingmybusiness.black/?p=3336

Tax Tip

Hobbie or Business

Here’s what to know about that side Hustle.

IRS Tax Tip 2023-61, May 3, 2023

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.

There are a few other things people should consider when deciding whether their project is a hobby or business. No single thing is the deciding factor. Taxpayers should review all 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 make a future 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?

Whether taxpayers have a hobby or run a business, good record keeping is always key when it’s time to file taxes.

More information:

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