Is your favorite hobby (hereafter referred to as “activity”) actually a business? The following factors described by the IRS should be considered:

  • Does the time and effort put into the activity indicate an intention to make a profit?
  • Do you depend on income from the activity?
  • If there are losses, are they due to circumstances beyond your control, or did they occur in the start-up phase of the business?
  • Have you changed methods of operation to improve profitability?
  • Do you have the knowledge needed to carry on the activity as a successful business?
  • Have you made a profit in similar activities in the past?
  • Does the activity make a profit in some years?
  • Do you expect to make a profit in the future from the appreciation of assets used in the activity?

If your activity has made a profit in at least three of the last five years, it is for-profit and therefore more likely a business. If it is NOT for-profit, losses may not be used to offset other income (deductions cannot exceed receipts for the activity).

For additional information or help determining whether your activity is a business, please contact our office.