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 of 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:
Whether taxpayers have a hobby or run a business, good record keeping is always key when it’s time to file taxes.
Publication 535, Business Expenses
Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C)
Small Business and Self-Employed Tax Center at IRS.gov Understanding Your Form 1099-K
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Mia Verc, CPA; Janice Papais, CPA
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