Hobby vs Small Business

Small business

Determining if I have a hobby or a small business

An activity is presumed carried on for profit if it produces a profit in at least 3 of the last 5 tax years, including the current year. This is a very important rule in determining if your activity is a hobby or a small business.

Activities that consist primarily of breeding, training, showing or racing horses are presumed to be carried on for profit if they produced profit in 2 of the last 7 tax years, including the current year. If your activity is not carried on for profit, your tax deductions and losses may be limited.

Hobby

Why is a Hobby not a business?

A hobby is not considered a business because its activities are not carried on to generate a profit.

Where to report hobby income?

Hobby income is reported on line 21 (other income) of Form 1040.

How to deduct hobby expenses?

You can generally deduct hobby expenses, but only up to the amount of hobby income. Expenses resulting from a hobby are handled as a miscellaneous deduction reported on Schedule A, Itemized Deductions.