It’s important to know whether to decide your project as a business or a hobby. When filing taxes, hobbies and businesses are regarded differently. Hobbies are designated as recreational,
while businesses are designated as for profit. To aid in the process, the IRS has provided the following questions taxpayers should ask themselves:
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Does the time and effort they put into the activity show they intend to make a profit?
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Does the activity make a profit in some years, and if so, how much profit does it make?
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Can they expect to make a future profit from the appreciation of the assets used in the activity?
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Do they depend on income from the activity for their livelihood?
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Are any losses due to circumstances beyond their control or are the losses normal for the startup phase of their type of business?
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Do they change their methods of operation to improve profitability?
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Do they carry out the activity in a businesslike manner and keep complete and accurate books and records?
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Do the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business?
Do these questions sound like you, but you don’t know where to start? Don’t worry! The IRS has resources regarding small business expenses and taxes.
Business Expenses:
Guide
to Business Expense Resources | Internal Revenue Service (irs.gov)
Small Business Tax Guide:
https://www.irs.gov/pub/irs-pdf/p334.pdf
