Small businesses get better tax breaks than hobbyists, reports the Small Business Administration. As a hobbyist, you must pay tax on any income earned from your activities, but are limited in your deductions. When performing an activity with the intent of making a profit, you are considered “in” business.
Hobbyists, go a little further and become a business-in-fact with all of its tax and legal benefits.
Telltale Signs you are Running a (Real) Business
- Your garage and/or spare bedroom are so full of supplies and inventory that you can’t park your car or find your way to the window.
- Your sales have grown, along with your need for supplies and related expenses, and you’re making a name for yourself, your products and/or services (branding).
- Your supplier tells you that to be able to order in larger quantities and to get price breaks, you’ll need a state tax ID number (obtainable only for registered businesses).