Sometimes the line between having a hobby and running a business can be confusing, but knowing the difference is important because hobbies and businesses are treated differently when it’s time to file a tax return. The biggest difference between the two is that businesses operate to make a profit while hobbies are for pleasure or recreation.
Whether people are having fun with a hobby or running a business, if they accept more than $600 for goods and services using online marketplaces or payment apps, they could receive a Form 1099-K. Profits from the sale of goods, including personal items, and services are taxable income that must be reported on tax returns.
There are a few other things people should consider when deciding whether their project is a hobby or a business. No single item is the deciding factor; taxpayers should review all of the factors to make a good decision.
How taxpayers can decide if they have a hobby or business
These questions can help taxpayers decide whether they have a hobby or business:
Whether taxpayers have a hobby or run a business, good record keeping is always key when it’s time to file taxes.
For more information, contact Wayne M. Pecht, Esquire at 717-761-4540 or [email protected].