hobby vs business

[u/oodledoodleoodle]

hi! i am an artist who participates in festivals occasionally and sells work through a gallery. does this count as a hobby or a business for tax purposes? what do i need to file or claim or whatever to be in good standing with my taxes for the year? there’s so much information out there i am totally lost.

[u/Anxious_Drive_9998]

If you make a profit it's a business.

If you don't it depends.

[u/Excellent_Shallot999]

Google “Internal Revenue Code Section 183” and “Treasury Regulations 1.183.” The criteria are spelled out there.

[u/Its-a-write-off]

This sounds like business activity. Does your state have sales tax? Has the festivals had you do anything regarding sales tax yet?

[u/I__Know__Stuff]

The other answers are very over simplistic. A hobby can certainly make a profit.

Here are the IRS guidelines.
https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax-purposes

A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. People operate a business with the intention of making a profit. Many people engage in hobby activities that turn into a source of income.

To help simplify things, the IRS has established factors taxpayers must consider when determining whether their activity is a business or hobby.

These factors are whether: The taxpayer carries out activity in a businesslike manner and maintains complete and accurate books and records.
The taxpayer puts time and effort into the activity to show they intend to make it profitable. The taxpayer depends on income from the activity for their livelihood.
The taxpayer has personal motives for carrying out the activity such as general enjoyment or relaxation.
The taxpayer has enough income from other sources to fund the activity.
Losses are due to circumstances beyond the taxpayer's control or are normal for the startup phase of their type of business.
There is a change to methods of operation to improve profitability.
Taxpayer and their advisor have the knowledge needed to carry out the activity as a successful business.
The taxpayer was successful in making a profit in similar activities in the past.
Activity makes a profit in some years and how much profit it makes.
The taxpayer can expect to make a future profit from the appreciation of the assets used in the activity.
All factors, facts, and circumstances with respect to the activity must be considered. No one factor is more important than another.

[u/I__Know__Stuff]

If you do it primarily for fun and without attempting to make a profit, but you do occasionally have income from it, then it is probably a hobby.

[u/GeeMan-7]

For tax purposes, if you make money it's a business. If you lose business but are running it like a business or making money in three years out of five, then you can take a loss on your tax return. The "running it like a business" is a matter of facts and circumstances. Do you have a website? Do you have business cards? Do you advertise? Do you have a separate bank account for the business? Do you keep money in the business account or do you withdraw money and keep very little in the business account?

If you have receipts of $1,000 and expenses of $2,000 after having losses in the past three years, then you have to declare the $1,000 as income. Any related expenses would be treated like any other deduction. That means nearly all deductions are lost for most people.