What to Do When a Hobby Becomes a Business

What to Do When a Hobby Becomes a Business?

A lot of people wonder what to do when a hobby becomes a business in terms of taxes. There are many people that start something as a hobby and find it profitable so they turn the hobby into a business.

If you can turn your hobby into a business, then it is a good thing in terms of taxes because you can then deduct a lot of expenses on your tax returns.

The IRS will not allow you to deduct hobby expenses by there are so many business deductions that you can claim.

The key is to be able to prove to the IRS that you hobby is now a business. You may not have to prove it but, if you are ever audited by the IRS, at least you are prepared to prove.

There are so many people that tried to claim that hobby expenses as business expenses and the IRS really frowns upon them.

In general, you have a business and not just a hobby if:

  • You start the business with the intention of making profit
  • You participate significantly in the business
  • You show that you are committed to the business
  • You are operating the business in a businesslike manner

Tax Questions is a resource and information website only. We do not offer individual advice. For specific tax questions and answers, you are advised to consult your tax attorney.