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Business as hobby

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Explain how a business can be classified as a hobby. Give examples of businesses that can be for profit-seeking or for personal pleasure.

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Solution Summary

This solution explains how a business can be classified as a hobby for income tax purposes. Examples are also provided.

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This area stems from the fact that many people make profits from their hobbies. Person A begins selling some crafts that they've been making on eBay as a hobby. Person B likes knitting and decides to start selling his/her creations at the local senior center or community center. The IRS needed to address the question, at what point does a hobby where profits are collected become taxable? In response, the IRS published guidelines on determining if an activity is a hobby or a business. Here is what the IRS has ...

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