Is it a Hobby or a Business?

Are you considering putting your hobby on a Schedule C? How do you determine if it is a hobby or actually a business activity? A hobby is any activity that you do for enjoyment and have no intention of making a profit. Many people engage in a hobby that eventually turns into being an extra source of income.

So how do you determine if it’s a hobby or a business? Consider the following questions:

• Do you maintain complete and accurate books and records?
• Do you intend to make it profitable?
• Do you depend on the income for your livelihood?
• Do you have personal motives for carrying out the activity?
• Do you have income from other sources to fund the activity?
• Are losses due to circumstances beyond your control?
• Are you making changes to make the operation profitable?
• Do you have the knowledge needed to carry out the activity as a successful business?
• Did you make a profit in similar activities in the past?
• Do you make a profit in this activity in some years?
• Can you make a future profit from the appreciation of the assets used in the activity?

If you make income from an activity that is carried on with no intention of making a profit (a hobby), you must report the income as other income on your 1040, Schedule 1, Line 8j (Other Income: activity not engaged in for profit income). With this income coming from a hobby, you do not get to deduct any expenses against this income.

If you have questions about putting your hobby on a Schedule C, please consult your accountant.