I'm earning income on the side. Is it a business or a hobby?
A business operates to make a profit. People engage in a hobby for sport or recreation, not to make a profit.
You must report income earned from hobbies whether it’s something you’ve been doing for years or something you just started to make extra money.
You must consider the following 9 things 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 you put into the activity show you intend to make it profitable.
Whether you depend on income from the activity for your livelihood.
Whether any losses are due to circumstances beyond your control or are normal for the startup phase of their type of business.
Whether they change methods of operation to improve profitability.
Whether you and your advisors have the knowledge needed to carry out the activity as a successful business.
Whether you were 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 you can expect to make a future profit from the appreciation of the assets used in the activity.
Businesses are entitled to deduct their expenses from their sales in order to determine their taxable profit.
If you have a hobby, your sales are reported as income and you can deduct your expenses to up the amount of your sales. Important: Hobby expenses can only be deducted as a personal itemized deduction under the miscellaneous deduction category. Until 2025, that category is not deductible at all. The result is that the sales from a hobby are fully taxable without being able to deduct expenses.
What is the sharing or gig economy I've heard about and how does it affect my taxes?