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Hobby or Business?

How to Know the Difference

(and Why It Matters for Taxes)

Many small ventures start out as hobbies — baking, handmade crafts, photography, consulting. But once money starts coming in, one key question arises:
Is this still a hobby, or has it become a business?

The IRS treats hobbies and businesses differently, and your classification impacts how you report income, what deductions you can claim, and how much tax you owe.

What's the Difference Between a

Hobby and a Business?

  • A business is an activity carried out with the intent to make a profit.

  • A hobby is done for personal enjoyment, even if it occasionally generates income.

For example: If you occasionally sell hand-knit scarves, it may still be a hobby. But if you take regular orders, track expenses, and promote your work — the IRS might see it as a business.

Income Through Payment Apps = Taxable

If you're getting paid through PayPal, Venmo, Zelle, Stripe, or similar services, you may receive a Form 1099-K.
This form is sent by the payment processor (not the IRS), and your earnings may be reported directly to the IRS.

Even if you're unregistered or consider your work a hobby — this income is taxable and must be reported.

IRS Checklist: Is This a Business?

The IRS considers a combination of factors to determine if your activity qualifies as a business. Ask yourself:

  • 💼 Do you intend to make a profit?

  • 💰 Do you depend on this income for your livelihood?

  • 📚 Do you keep records of income and expenses?

  • 🔧 Do you adjust your approach to improve profitability?

  • 🎓 Do you have the knowledge or advisors to make it work as a real business?

No single answer decides it — but the more "yes" responses, the more likely it’s a business in the eyes of the IRS.

Why Classification Matters

If it’s a business, you may:

  • Deduct expenses (supplies, mileage, equipment, software)

  • Formally register and open a business bank account

  • File Schedule C or as an entity (LLC, S-Corp, etc.)

If it’s a hobby,

income is still taxable — but you can’t deduct losses or expenses.

What If You’re Unsure?

Don’t wait until tax season to decide.
Misclassifying your activity can lead to penalties, back taxes, or missed deductions.

Need Help?

If you're unsure how to report your income or whether your activity qualifies as a business, I can help you evaluate your situation and choose the right path forward.

Message me for a personalized review.

"Taxes on Venmo, Zelle, CashApp in 2025 —

What You Need to Know"

💡 Key point: The IRS does not tax personal money transfers — but business payments are now reportable starting at just $600/year.

🔍 What to know:

• If you sell products or services through Venmo, CashApp, or Zelle and receive over $600, the platform may issue you a 1099-K.
• Personal transfers (gifts, paying someone back, splitting a check) are not taxed, but be sure to mark them as “personal.”
• The IRS can match your 1099-K to your tax return — any mismatch may trigger a notice like:
👉 “We found a problem with your tax return…”

✔️ What you should do:

• Track what’s personal vs business
• Clarify transactions in the notes
• Make sure the platform has your SSN/ITIN — to avoid a 1099-K being issued under someone else’s name