IRS Tips and Tricks — Here’s how to tell the difference between a hobby and a business for tax purposes.

A lot of CPAS still struggle with understanding the difference between a hobby and a business. On 13th July 2022, the IRS gave its thoughts. Read Below:

A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. People operate a business with the intention of making a profit. Many people engage in hobby activities that turn into a source of income. However, determining if that hobby has grown into a business can be confusing.

To help simplify things, the IRS has established factors taxpayers must consider when determining whether their activity is a business or hobby.

These factors are whether:

  • The taxpayer carries out activity in a businesslike manner and maintains complete and accurate books and records.

All factors, facts, and circumstances with respect to the activity must be considered. No one factor is more important than another.

If a taxpayer receives income from an activity that is carried on with no intention of making a profit, they must report the income they receive on Schedule 1, Form 1040, line 8.

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A blog created by CPE Warehouse to provide all tax professionals with relevant updates and information. Subscribe to stay up to date and learn more!