Tax Tip 2023-61: Hobby or business: here’s what to know about that side hustle

IRS Tax Tips May 3, 2023
Useful Links: IRS.gov Help For Hurricane Victims News Essentials What's Hot News Releases IRS - The Basics IRS Guidance Media Contacts Facts & Figures Around The Nation e-News Subscriptions The Newsroom Topics Multimedia Center Noticias en Español Radio PSAs Tax Scams/Consumer Alerts The Tax Gap Fact Sheets IRS Tax Tips Armed Forces Latest News IRS Resources Contact Your Local IRS Office Filing Your Taxes Forms & Instructions Frequently Asked Questions Taxpayer Advocate Service Where to File IRS Social Media	Issue Number:  Tax Tip 2023-61 Hobby or business: here's what to know about that side hustle Sometimes the line between having a hobby and running a business can be confusing, but knowing the difference is important because hobbies and businesses are treated differently when it's time to file a tax return. The biggest difference between the two is that businesses operate to make a profit while hobbies are for pleasure or recreation. Whether someone is having fun with a hobby or running a business, if they accept more than $600 for goods and services using online marketplaces or payment apps, they could receive a Form 1099-K. Profits from the sale of goods, including personal items, and services is taxable income that must be reported on tax returns. There are a few other things people should consider when deciding whether their project is a hobby or business. No single thing is the deciding factor. Taxpayers should review all of the factors to make a good decision. How taxpayers can decide if it's a hobby or business These questions can help taxpayers decide whether they have a hobby or business: Do they carry out the activity in a businesslike manner and keep complete and accurate books and records? Does the time and effort they put into the activity show they intend to make a profit? Does the activity make a profit in some years – if so, how much profit does it make? Can they expect to make a future profit from the appreciation of the assets used in the activity?   Do they depend on income from the activity for their livelihood?  Are any losses due to circumstances beyond their control or are the losses normal for the startup phase of their type of business?   Do they change their methods of operation to improve profitability?   Do the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business? Whether taxpayers have a hobby or run a business, good record keeping is always key when it's time to file taxes. More information: Publication 535, Business Expenses Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C) Small Business and Self-Employed Tax Center at IRS.gov Understanding Your Form 1099-K   Back to top           Thank you for subscribing to IRS Tax Tips, an IRS e-mail service. For more information on federal taxes please visit IRS.gov. This message was distributed automatically from the IRS Tax Tips mailing list. Please Do Not Reply To This Message.

 

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