When is a hobby considered a business for tax purposes?: Quick Tip for Taxes

When is a hobby considered a business for tax purposes?: A Quick Tip for Taxes

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This post is all about When is a hobby considered a business for tax purposes?  Ron Sokol is a Manhattan Beach attorney with a weekly column in the Daily Breeze.  Here he  answers a reader’s tax question that may be a helpful consideration for your business:

Q You will tell me to consult with a tax specialist, which is fine, but I just want some of the basics: When is a hobby considered a business for tax purposes? – D. J., Manhattan Beach

A  First, we are expected to pay taxes on all income, whether derived from a business or a hobby. The distinction between the two affects tax treatment, such as deductions that can be taken and how losses are treated. A hobby is considered an activity that is not carried out for profit, whereas a business is conducted with the reasonable expectation of earning a profit.

There are many factors to be evaluated. A useful article, with a list of criteria, is published online by the IRS at  http://bit.ly/2wnHI16. Among the considerations are how you operate the activity (in a businesslike manner or otherwise), whether you depend on the income for your livelihood, and if the activity makes a profit. And, yes, it is definitely prudent to consult with a tax specialist. – Ron Sokol

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IRS Criteria

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