Earning Side Income: Is it a Hobby or 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 taxpayer 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.

copyright. Accounting World

Leave a Reply

Your email address will not be published. Required fields are marked *

Fill out this field
Fill out this field
Please enter a valid email address.
You need to agree with the terms to proceed

Menu