Do you know if your hobby is properly classified in your taxes? What drives the need to label your hobby an official business? A big factor proper classification lies within profitability of an activity.

Hobby versus Business Classification

A hobby is classified as an activity pursued outside primary work primarily for pleasure. However, a business is used to earn profit. Proof of a profit motive is required to generate a tax loss from a business. A business must produce profit three out of five years to qualify as a business. 2018-2025 taxpayers will not be allowed to deduct any expenses generated by hobbies, but they must report and pay tax on any income earned from a hobby.

For additional information on business and hobby classification for taxes, refer to the National Association of Tax Professionals guide: https://www2.natptax.com/eweb/upload/ES893/874-hobby-business.pdf.

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