Tips for Taxpayers With Hobby Income

Jul 6, 2023 | Individuals, Newsletter, Tax

Hobby activities are a source of income for many taxpayers. As a reminder, this income must be reported on tax returns. But the reporting rules are different than for income from a for-profit business. For one thing, hobbyists can’t deduct their hobby expenses.

A hobby is any activity that a person pursues because they enjoy it without intending to make a profit. When determining whether your activity is a business or hobby, consider the following nine factors:

  1. Whether the activity is carried out in a business-like manner and you maintain complete and accurate books and records.
  2. Whether your time and effort in the activity show you intend to make it profitable.
  3. Whether you depend on income from the activity for your livelihood.
  4. Whether any losses are due to circumstances beyond your control or are normal for the startup phase of their business.
  5. Whether you change methods of operation to improve profitability.
  6. Whether you and your advisors know how to conduct the activity as a successful business.
  7. Whether you successfully made a profit from similar activities in the past.
  8. Whether the activity makes a profit in some years and how much profit it makes.
  9. Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

No one factor is more important than another. If you receive income from an activity carried on with no intention of making a profit, the income must be reported on Schedule 1, Form 1040. Please contact the office if you have any questions about hobby income.

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