A recent post on the IRS’s social media reminds taxpayers of the fact that many Americans may not know that their hobby may be a business if they make money from it.
Needless to say, hobbies and businesses are not treated in the same way when it comes to taxes. If you have just taken up a new hobby and you earn money, check how it could affect your 2024 tax return in 2025.
IRS explains the difference between a hobby and a business
The Internal Revenue Service explains that a hobby is for recreation and fun, while a business’ goal is to make money. Anyway, those American taxpayers who are paid through apps for either services or goods may get an IRS Form 1099-K.
Bear in mind that these transactions are taxable income and they will be taken into account in your Federal tax return. That is why it is essential to report any earnings you may have from a hobby.
The IRS has provided taxpayers with a list of questions to find out if the activity they are carrying out is a hobby or a business. By answering them, you will quickly find it out.
IRS questions to distinguish a hobby and a business
- Does the effort and time you put into the task show you want to make money?
- How much money do you make from this profit?
- Could you expect to make a profit in the future from the appreciation of the assets you have used in this hobby?
- Do you rely on the money from this hobby for your livelihood?
- Are any losses due to circumstances beyond your control?
- Do you change your methodology to make a higher profit?
- Do you have records of all the profits you make?
- Do you have the knowledge to carry out a successful business?
If you have already found out if your activity is a hobby or not, make sure you ask the IRS any doubts you may have. For more details, visit the IRS official website at https://www.irs.gov/newsroom/hobby-or-business-what-people-need-to-know-if-they-have-a-side-hustle.