Tact Fact: Hobby Versus Business
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Imagine if you could turn your favorite leisure activity into a successful business venture. Many Americans are now turning to what they love to earn income, whether it’s enough to quit their day job or just a fun way to cover the costs.

If you are passionate about a craft or other activity, your money-making opportunities are virtually endless these days. To turn an activity into a business, you don’t need to reach a certain level of sales or income. To have a business, all you really need is a reasonable expectation that you’ll make a profit from the activity.

So the hobby versus business question boils down to how you handle your expenses and what to do if your activity loses money. For example, let’s say you sell hand-crocheted goods in your spare time. If you actually lose money from this activity, when you factor in all the related expenses like yarn and marketing, the IRS will let you deduct this loss to offset your other income (i.e. your day job), if your crocheting is considered a business. You cannot deduct a loss if it’s a hobby.

Here are some questions to ask yourself and some tasks to start working on.
Do you keep financial records for your business?
Do you have a separate bank account for your business?
Do you have a business name?
Do you invest in advertising and marketing?


When you’re ready to move your activity beyond a fun pastime, you need to get serious about managing it. For example, you’ll need a bookkeeping system to log income and expenses. You’ll need a business checking account, and possibly a credit card. In addition, you may want to create a separate legal entity, such as a corporation or LLC.

It’s exhilarating when you realize that you can turn your favorite hobby into a commercial venture. A smart idea is to test the waters first by starting your new business on a part-time basis. Just remember that whether you are working on the venture part-time or full-time, you need to take the management and administrative tasks seriously if you want the IRS to consider it a business.

Here at Red Rock Tax & Consulting, we specialize in taking on the stressful parts of owning your own business, therefor allowing you the time to do what you love and give you time to make your dreams come true!

Have any questions, give us a call here at Red Rock Tax & Consulting. We are here to help you get through the stress of taxes! We offer a free 30-minute consultation so call us and let’s get your appointment set up 435-635-2494

From all of us here at Red Rock Tax & Consulting we hope you have a spectacular day!

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Have any questions, give us a call here at Metro Tax & Financial Services.
We are here to help you get through the stress of taxes!

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