About Me

Albuquerque, New Mexico, United States
I am a Certified Public Accountant in Albuquerque, New Mexico specializing in representing taxpayers who are unable to pay the taxes they owe or must file delinquent returns or are under audit. I am also a frequent presenter of IRS Small Business Workshops for new businesses and new employers. You can read more articles on my website.

Tuesday, July 23, 2019

How do you distinguish between a business and a hobby?

In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. A hobby activity is done mainly for recreation or pleasure. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:
  • Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
  • Whether the time and effort you put into the activity indicate you intend to make it profitable.
  • Whether you depend on income from the activity for your livelihood.
  • Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
  • Whether you change your methods of operation in an attempt to improve profitability.
  • Whether you or your advisors have the knowledge needed to carry on 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.
You may find more information on this topic in section 1.183-2 (b) of the Federal Tax Regulations.
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