What the difference between a hobby and a business? A business operates to make a profit. People engage in a hobby for sport or recreation, not to make a profit.

Here are nine things taxpayers must consider when determining if an activity is a hobby or a business:

• Whether the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.
  
• Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.
  
• Whether they depend on income from the activity for their livelihood.
• Whether any losses are due to circumstances beyond the taxpayer’s control or are normal for the startup phase of their type of business.
• Whether they change methods of operation to improve profitability.
• Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.
• Whether the taxpayer was successful in making a profit in similar activities in the past.
• Whether the activity makes a profit in some years and how much profit it makes.
• Whether the taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.