Earning income from a personal interest raises a key tax question: Is it a hobby or a business? This distinction is important because different tax rules apply. All income must be reported, but expenses and losses are deductible only if the activity qualifies as a business. If it’s considered a hobby, you can’t deduct related expenses. When making the hobby vs. business determination, the IRS reviews factors such as recordkeeping, time invested, profit history and potential, and reliance on the income to support yourself. If you earn income from a favorite pastime, contact us to better understand the tax implications.
