BUSINESS OR HOBBY? WHATS THE DIFFERENCE?

By V. McBee

The lady down the street cooks lip-smacking chocolate cupcakes with gourmet chocolate cream cheese icing. If she invites you and your friends over for beautiful cupcakes placed on saucers with hot chocolate, then it's her hobby.

If she puts a beautiful satin tablecloth on a fold-out table and sits it on the porch with a sign that says $1 each, it's her business.

According to the IRS, a business with any activity carried on with the reasonable expectation of earning a profit.

We will break down a few questions that the IRS has pointed out to consider when determining the difference.


Time & Effort

If the time that you put into what you're doing makes it seem like you are looking to make some money from it, then the IRS is considering it a business. It is also a business, if the effort that you put into the activity, even if it doesn't take a lot of time, directs you towards a money-making venture.


Depend On

Sometimes we do something, like planning a party or singing a song, and a person may unexpectedly give us a few dollars. If you are doing something that may or may not make money, but you consider that revenue as part of your income, you are in business. If you are singing in the church choir, it would be considered a hobby. If you are pursuing your rap career, even doing promo shows, it's business.


Losses

Sometimes people suffer losses that are beyond their control. Usually, a person in the start-up phase of their business will have to invest, even if it's a small amount of money, to get the company going. If the cupcake lady burned her oven up making cupcakes for the church, it would be considered a personal loss. If she burned it up trying to get those cupcakes to the table on the front porch with the dollar sign, it would be considered a business loss.


Operation

The main reason people change how they do something is to lower the cost or speed it up. A person who is occasionally doing something would have no need to be concerned with that type of information. If the lady with the cupcakes is giving them away, she wouldn't care how fast the cooking