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Business vs. Hobby

Criteria to Determine Whether an Activity Is a Hobby or a Business


The IRS’ criteria for determining whether an activity is a hobby or a business is generally determined by whether the activity shows a profit for 3 out of the last 5 years, including the current year (2 out of 7 years for activities involving horse racing, breeding, training, or showing). 


Criteria to Determine Whether an Activity Is a Hobby or a Business


  1. Thorough and business-like books

  2. Separate business checking account

  3. Separate credit cards for business and personal purchases

  4. Logbook to keep records of business and personal use of such items as computers, charter boats, camcorders, etc.

  5. Required licenses, insurance, certifications, etc.

  6. If operated from home, a separate business line for phone

  7. A show of any change in operations in an attempt to make a profit

  8. Research on market trends and technology related to the taxpayer’s business

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Cathy Fisher

Common Cents Bookkeeping and Tax Preparation

Serving Henderson, NC, Buncombe County, Polk County, Transylvania County

E: cathy@commoncentsqbo.com

P: 828-595-2835

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