Is your side hustle a hobby or a business?
In the mood to waste some time on YouTube? Search for magnet fishing.
In the mood to waste some time on YouTube? Search for magnet fishing. Treasure hunters cast powerful magnets into water and find all kinds of surprising stuff — think antique guns, a Viking sword, or even a safe full of cash.
Now imagine an IRS agent holding out his hand on the bank of the river: indeed, treasure finders owe taxes on any sales of their finds. But, do they owe taxes on the full value of what they found, or can they subtract their expenses?
The question here is “Is this a hobby or a business?” Any time you earn income (whether through an Etsy shop or finding gold coins), the IRS wants a share of the booty. But only businesses get to deduct expenses or losses. The IRS offers tips to differentiate a hobby vs. a business, but these waters can get a little murky. Maybe you devote regular time to making art, but you also treat it as a form of relaxation, so do you deduct supplies when you sell a piece?
If you think the distinction for your side hustle is ambiguous and you want to make a case that it’s a business and not a hobby, understand the IRS’s criteria one-by-one and document your observance over time. And good luck out there!
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