Many people have asked me the rules about activities being a hobby or a business. The IRS says that hobbies are activities that are not pursued for profit. Here are some things to consider:
Does the time and effort 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 he start-up phase of the business?
Have you changed methods of operation to improve profitability?
Do you 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?
Do you expect to make a profit in the future from the appreciation of assets used in the activity?
My experience is that if you can treat what you do as a small business owner, you will receive much better tax breaks, however, the key is what are your intentions with your efforts.
