Is my side hustle a hobby or business?

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Is My Side Hustle a Hobby or Business? When it comes to side hustles, there is often a question of whether the activity is a hobby or a business. This is an important distinction, as the Internal Revenue Service (IRS) treats hobbies and businesses differently when it comes to taxes. The IRS has a safe harbour rule, which is outlined in Internal Revenue Code Section 183, that can help you determine if your side hustle is a hobby or a business. The safe harbour rule states that if your activity earned a profit in three of the past five years, it may be considered a business. This means that if you have been consistently making a profit from your side hustle, it is likely a business. If you have not been consistently making a profit, it is likely a hobby. In addition to the safe harbour rule, there are other factors that can help you determine if your side hustle is a hobby or a business. These include: Time and effort: If you are putting a significant amount of time and effort into your side hustle, it is likely a business.

Professionalism: If you are running your side hustle in a professional manner, such as having a website or using professional services, it is likely a business. Expectation of profit: If you are expecting to make a profit from your side hustle, it is likely a business. Regularity: If you are engaging in your side hustle on a regular basis, it is likely a business. It is important to note that even if your side hustle is a hobby, you may still be required to report any income you make from it on your taxes. It is also important to keep track of your expenses, as you may be able to deduct them from your taxes if your side hustle is a business. Ultimately, the decision of whether your side hustle is a hobby or a business is up to you. However, it is important to be aware of the Irsay's safe harbour rule and other factors that can help you make the determination. By understanding the difference between a hobby and a business, you can ensure that you are filing your taxes correctly and taking advantage of any deductions you may be eligible for.

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