Is That Income from a Hobby or a Business?

Is That Income from a Hobby or a Business?

Whether you have income from a hobby or a business, it must be reported to the IRS when you file your taxes. However, you can’t deduct expenses or losses from a hobby; you may only claim them for a business (whether it’s your primary source of earnings or a side business). Treating a hobby as a business on your taxes can very possibly trigger an audit.

In the eyes of the IRS, the main difference between a hobby and a business is that the former is done for enjoyment, while the latter is done to earn a profit. But let’s take a closer look at how to determine whether specific income is from a hobby or a business.

Your Recent Profit Record

You have safe harbor protections to call your business a business as long as the activity has been profitable for at least three of the last five consecutive years. This is the simplest way to determine whether you’re dealing with income from a hobby or a business.

If you claim losses more often than this, the IRS will want to classify the activity as a hobby. However, it’s not necessarily this black and white, and there is a more detailed way of evaluating whether you have income from a hobby or a business. And, if you can demonstrate that you meet the criteria, you can make the case that your activity is in fact a business.

Considerations for Whether You Have Income from a Hobby or a Business

The following are important considerations in determining whether your income-earning activity is a hobby or a business. They don’t necessarily all have to apply, but the more that do, the more likely the IRS will agree that your activity is a business.

  • Your activity is considered a business if you:
  • Carry it out in a businesslike manner (have a business plan, keep receipts, maintain detailed records, etc.)
  • Depend on the income to meet living expenses
  • Have losses that are due to circumstances beyond your control and/or are typical for a business in your industry
  • Make operational changes to counteract losses/improve profitability
  • Have the necessary expertise and/or personnel to succeed in the business
  • Successfully made a profit with similar activities in the past
  • Can reasonably expect to make a profit in the future

Need help with your taxes?

Make sure you file your taxes correctly and maximize your refund or minimize your amount due with tax preparation and filing assistance from HBI's tax experts. Get in touch today.


We're a well-established tax and accounting, mortgage, and financial advisory firm operating since 2000. We serve our clients from three Central Florida locations. Our expertise extends to both domestic and international concerns when it comes to investing and doing business in Florida and beyond.

Blog Categories

Sign up now!

Subscribe to our monthly digital magazine for the latest content delivered straight to your inbox.

  • Please Choose
  • This field is for validation purposes and should be left unchanged.

Telephone +1 (863) 968-1010
Facsimile +1 (863) 968-1020
Auburndale Office
Harding Bell International, Inc.
113 Pontotoc Plaza
Auburndale, FL 33823-3439
Kissimmee Office
Harding Bell International, Inc.
8687 West Irlo Bronson Memorial Hwy, Ste 206
Kissimmee, FL 34747
Lakeland Office
Harding Bell International, Inc.
114 Palmola Street
Lakeland, FL 33803
Lake Wales Office
Harding Bell International, Inc.
29 State Road 60 West
Lake Wales, FL 33853
Longwood Office
Harding Bell International, Inc.
710 Miami Springs Dr Ste 100
Longwood, FL 32779

Orlando Web Design by CREATE180 Design