top of page

Earning side income: Is it a hobby or a business?

Updated: Jul 15, 2021

What the difference between a hobby and a business?

A business operates to make a profit. People engage in a hobby for sport or recreation, not to make a profit. Here are nine things taxpayers must consider when determining if an activity is a hobby or a business:

Business - the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.

Hobby - An activity that is done to supplement cash flow or just for fun and thee is no track record of sales and expenses.

Business - Using time and effort the taxpayer puts into the activity show they intend to make it profitable. Hobby - There is very little or no planning for activity. Can be very impromptu.

Business - You depend on income from the activity for their livelihood. Hobby - Your livelihood is unaffected by loss because it is not your main source of income.

Business - The activity makes a profit in some years and you monitor how much profit it makes. (note: If your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby, which would prevent you from claiming a loss related to the business, which may result in you having to pay tax on hobby income.)

Hobby - there is no concern about profit.

Business - change methods of operation to improve profitability.

Hobby - there is a lack of concern about methodology.

Business - the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.

Hobby - Doesn't consult with advisors or professionals. Typically engages in activities as a quick hustle.

Business -The taxpayer was successful in making a profit in similar activities in the past. Hobby - The taxpayer often tries a multitude of different activities as a quick hustle for quick cash flow. Lack of consistency, stability, or foundation.

Business - The taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.

Hobby - Less likely to have assets or asset appriciation.

11 views0 comments

Recent Posts

See All


Rated 0 out of 5 stars.
No ratings yet

Add a rating
bottom of page