Here’s what you need to know about this side hustle

Hobby or Business: Here’s what you need to know about this side hustle

Sometimes the line between owning a hobby and running a business can be confusing, but knowing the difference is important because hobbies and businesses are treated differently when it comes time to file a tax return. The biggest difference between the two is that businesses operate for profit while hobbies are for leisure or entertainment.

Whether someone enjoys a hobby or runs a business, if they accept more than $600 for goods and services using online marketplaces or payment apps, they can get a Form 1099-K. Gains from the sale of goods, including personal items, and services are taxable income that must be reported on tax returns.

There are a few other things that people should consider when deciding whether their venture is a hobby or a business. No single thing is the deciding factor. Taxpayers should review all factors to make a good decision.

How taxpayers can decide if it’s a hobby or a business

These questions can help taxpayers determine if they have a hobby or a business:

  • Do they conduct the activity in a commercial 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 appreciating the assets used in the activity?
  • Do they depend on the income from the activity in their livelihood?
  • Are any losses due to circumstances beyond their control or are the losses normal for the startup stage of their type of business?
  • Are they changing their business methods to improve profitability?
  • Do the taxpayer and his or her advisors have the knowledge necessary to carry out the activity as a successful business?

Whether taxpayers have a hobby or run a business, that’s a good thing Keeping records It’s always key when it comes time to file taxes.

more information:

Publication 535, Business Expenses
Publication #334, Small Business Tax Guide (For Individuals Using Schedule C)
The Small Business and Self-Employed Tax Center at Understand your Form 1099-K

Original content by This information is provided on the basis that Payroll Partners does not provide legal, human or other professional advice or services. Professional advice on specific issues should be sought from an attorney, HR consultant or other professional.

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