South Carolina Tax Attorney

We are continuing on through the Hobby vs. Business series and have come to the second of the factors used to determine whether your activity should be considered a business or a hobby and we remember that this determination could make a huge impact on your tax returns and what you will owe the government this year.

Factor 2 is somewhat similar to the first factor relating to the time and effort put into the activity.  But it starts to get a little deeper.  The question is, “do you depend on income from the activity?”  I would like to add a few more words “for your survival?”  Some activities make money; some make lots of money, and lots of times you have to spend a lot of money to make this money.  But, are you relying on this activity to be able to pay your bills this month?  If so, it is much more likely that your activity is a business rather than a hobby.  If you are doing the work and just piddling around with the little bit of money that you are earning it may not be considered a business.

Keep in mind that none of these factors are determinable in themselves in the determination of “hobby or business” but they are each considered in the equation by the IRS.