Part-Time Hobby or a Business?

openforbusinessAre you interested in pursuing your favorite hobby as a business? You should know that if the IRS views your activity as a hobby rather than as a business, your tax deductions for business-type expenses are subject to certain limitations.

To qualify as a hobby, an activity must be conducted for the primary purpose of earning a profit. Factors considered by the IRS to determine hobby or business are:

1. Your experience.

2. The time and effort put into the activity.

3. Your history of income/loss with respect to the activity.

4. The presence of personal pleasure or recreation.

5. The existence of a written business plan.

Generally, the IRS assumes that an activity qualifies as a business if it shows a profit for three out of the last five years.

If your business is considered to be a hobby, your deduction for hobby expenses cannot exceed the activity’s gross income, and the hobby expenses will be deductible only to the extend that they (when combined with your other expenses) exceed 2% of your adjusted gross income.

If you have questions about whether your business could be considered to be a hobby, please contact us. As a CPA, Accredited Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners just like you and provide tax, accounting, financial analysis, management, business planning, and small business advisory services. We can help you to start, manage, and grow a successful small business. For more information, call (727) 391-7373 or else visit us on the web at