Hobby vs. Business

The difference between a hobby and a business comes up sometimes when discussing taxes. It’s one thing to have a side gig, it’s another to claim a side gig is a business when it’s not really set up to make money. Or at least this is the view given in a recent Forbes article. This isn’t the only negative view I have heard about the situation, either. Another runs along the lines of, “you’re making some money, you better hope the IRS doesn’t find out.”

But why is this never framed as a positive? How about, “wow, you’ve started to make some money doing this thing you love, you can start getting some tax deduction for this.”

It is really easy to have this situation feel bad, so I understand where it comes from. After all, this typically starts from someone enjoying a hobby then selling some goods or services to friends and family. And granted, most endeavors of this type are never going to reach anyone’s notice that you would need to worry about.

But then more and more people start to see what someone does, they want something from them as well, more exchanges start happening, and that allows for more chances that this does get to a point where tax forms may be involved, and it will get noticed. And at that point, yes, you may be expected to pay some taxes on that money.

When that happens, what was really fun and got you money to take the family out for a meal starts to feel less fun when the government wants some of it, too.

Well first, that’s not going to be the government trying to take away the money for that one meal, it will only want something because you earned enough for multiple meals. So to start, it just means you’re already doing pretty well.

And second, it doesn’t have to only be giving up some of what you make, for when done correctly, it could also let you claim some deductions. For example, if you are selling some crafts, what you buy to make those items can become a business expense.

Sure, this line between hobby and expense can be tricky and is not always clear. At the same time, though, when its issues arise because you are making money, it shouldn’t take the biggest work of reframing to make that a good thing. And of course, if this began as something very small, you may not understand its tax implications and instead want to hide from it. But if it is something you want to pursue and continue to make work for you (ideally even more so than it is now) then don’t be afraid to reach out and find out the right ways to do it. For again, this doesn’t have to be a bad thing.

Warmly,

Josh Bousquet
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