though, is that it is not hard to prove you are not a hobby, but a
real business. The number would have to be checked again, but it
used to be 400 hours a year. Basically, if you spend more than 400
hours a year on your endeavor, it is a business.
This is from the IRS… I’m not sure where Kim got the
about working for 400 hours…
IRS Summertime Tax Tip 2007-13
Fishing, Gardening, Golf, Sewing, Woodworking, Horsemanship, Scrap
Booking, Stamp and Coin Collecting, etc.
The IRS isn’t trying to spoil your fun but if your favorite activity
makes a profit every year or so, there may be tax implications that
What is a hobby? Hobbies, also called not-for-profit activities, are
those activities that are not pursued for profit. What is a
business? Generally, your activity is considered a business if it is
carried on with the reasonable expectation of earning a profit.
If you are not sure whether you are running a business or simply
enjoying a hobby, here are some of the factors you should consider:
Do you run the activity in a businesslike manner?
Does the time and effort you put into the activity indicate an
intention to make a profit?
Do you depend on income from the activity?
If there are losses, are they due to circumstances beyond your
control or did they occur in the start-up phase of the business?
Have you changed methods of operation to improve profitability?
Do you or your advisors have the knowledge needed to carry on the
activity as a successful business?
Have you made a profit in similar activities in the past?
Does the activity make a profit in some years?
Can you expect to make a profit in the future from the appreciation
of assets used in the activity?
An activity is usually considered a business if it makes a profit
during at least three of the last five tax years, including the
An exception is breeding, showing, training or racing horses. Such
activity is presumed to be a business if it makes a profit during at
least two of the last seven years.
If you are conducting a trade or business you may deduct your
ordinary and necessary expenses. An ordinary expense is an expense
that is common and accepted in your trade or business. A necessary
expense is one that is appropriate for your business.
Losses from a not-for-profit activity (hobby) may not be used to
offset other income. It is possible to claim some deductions for
hobby activities as itemized deductions on your Form 1040 income tax
However, there are special rules and limits to the deductions you
can claim, and those deductions may not exceed the gross income from
Still confused? More is available at IRS.gov. A good
resource is Publication 535, Business Expenses, found on the web site
or by calling 800-TAX-FORM (800-829-3676).