Are You a Business?
To begin to make the best financial decisions for yourself, first, figure out whether you are a business or a hobby in the eyes of the IRS. This will help you budget, set goals, and move toward them in your mindset and legally speaking.
What is a Business vs. Hobby
“A business operates to make a profit. People engage in a hobby for sport or recreation, not to make a profit.”-IRS Website
Many people engage in hobby activities that become a source of income and will need to determine if that hobby has grown into a business.
The IRS uses a nine-part test to help taxpayers determine whether they have a hobby or business. You can take the quiz in the following lesson to help you determine if you are classified as a business or hobby in the eyes of the IRS.
PROS OF EACH:
The major PRO of being a business is you can have tax write-offs ie materials, studio costs, this course etc.
The major PRO of being a hobbyist is that you don’t have to pay self-employment tax.
On the next page you will take a quick quiz to see how you are classified.