The IRS has issued a fact sheet related to differentiating between taxpayers’ hobbies and businesses. There are several factors that taxpayers should consider when making the determination and the IRS provides resources to help.
The following information is available on IRS.gov to help a taxpayer determine if their hobby qualifies as a business:
- Business Activities
- Five Things to Remember about Hobby Income
- Earning side income: is it a hobby or a business?
If taxpayers aren’t trying to make a profit with their hobby, business, or investment activity, they can’t use a loss from the activity to offset other income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It doesn’t apply to corporations other than S corporations. If taxpayers receive 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.