When you look at your income for the year, you may find that you made some money from one of your pastimes. But how do you know if that pursuit is just a hobby, or if it’s turned into an actual business?
It’s important to make sure you classify your income properly because it has implications on how that income is reported and how much tax you may owe.
The key consideration for the IRS is that businesses operate to make a profit while hobbies are for pleasure or recreation. If you are only getting a small amount of income occasionally throughout the year from an activity, but aren’t making a profit, you likely have a hobby. Keep in mind that you still need to report your income from your hobby on Schedule 1, Form 1040, line 8j.
However, you might be operating a business if you:
- Conduct your activity in a businesslike manner, such as by keeping complete and accurate books and records,
- Put much of your time and effort into the activity,
- Intend to make a profit from the activity,
- Depend on the activity’s income for your livelihood, or
- Generated profit from the activity in previous years.
You can find more information about reporting business income in Publication 334, Tax Guide for Small Business, For Individuals Who Use Schedule C.
You may receive a Form 1099-K for the money you receive from your hobby or business.
No matter whether your side-hustle is a hobby or a business, if you’re having trouble getting issues resolved with the IRS, TAS is here to help. Check out our Get Help section for resources to make your tax filing easier or see if you qualify for TAS assistance.