Is it a Business or a Hobby?
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It is generally accepted that people prefer to
make a living doing something they like. A
hobby is an activity for which you do not expect
to make a profit. If you do not carry on your
business or investment activity to make a
profit, you cannot use a loss from the activity
to offset other income. Activities you do as a
hobby, or mainly for sport or recreation, are
often not entered into for profit.
The limit on not-for-profit losses applies to individuals, partnerships,
estates trusts, and S corporations. For additional information on these
entities, refer to
business structures. It does not apply to corporations other than S
In determining whether you are carrying on an activity for profit, all
the facts are taken into account. No one factor alone is decisive. Among
the factors to consider are whether:
- You carry on the activity in a business-like manner,
- The time and effort you put into the activity indicate you intend to
make it profitable,
- You depend on income from the activity for your livelihood,
- Your losses are due to circumstances beyond your control (or are
normal in the start-up phase of your type of business),
- You change your methods of operation in an attempt to improve
- You, or your advisors, have the knowledge needed to carry on the
activity as a successful business,
- You were successful in making a profit in similar activities in the
- The activity makes a profit in some years, and the amount of profit
it makes, and
- You can expect to make a future profit from the appreciation of the
assets used in the activity.