Business vs. Hobby: How to Tell the Difference

Say you just got your new Cricut and want to start making shirts, cups, etc., on it, and someone comes up and says, “Wow, I love your designs, you should totally sell these!” and so you start selling shirts for $10. Did you just become a business, or are you just doing something you enjoy? Well, that depends. The IRS classifies a hobby as, “any activity a person pursues because they enjoy it and with no intention of making a profit.”

Factors to consider if their activity is a business or a hobby

· Do you maintain accurate records of your expenses and sales

· Do you depend on the income earned from the activity

· Are you doing the activity for overall enjoyment or relaxation

· Have you promoted or advertised your activity

· Have you made or do you expect to make a profit in this activity

These are just some factors to consider if you need help determining if your activity is still a hobby or if it has turned into a business. For a complete list of factors please click Here. No one factor is more important than the others, and there is a holistic approach taken to determine if your activity is a hobby or a business.

For assistance or if you have questions in trying to determine if your activity is a business or a hobby please reach out to the Professionals at The Center for Financial, Legal, & Tax Planning Inc., at (618) 997-3436.