Is your hobby just a hobby… or is it a business? 

A lot of people from around the world enjoy hobbies that are also a source of income for them. If you earn income from hobbies, you must report it on your tax return, and the rules depend on whether the activity is actually a hobby or a business. 
Here are four tips to help you decide:

Business or hobby?

A big feature of business is that you do it to make a profit. A hobby is something you do solely for recreation and enjoyment, not to make money. Determine what your goal is in your hobby: fun or money. 

Allowable Hobby Deductions 

You can typically deduct ordinary and necessary hobby expenses. Something ordinary would be acceptable and common to your hobby. Something necessary is needed and appropriate for the activity. 

Limits on Hobby Expenses

Normally you can only deduct hobby expenses up to the amount of hobby income. If the expenses are more than the income, you have a loss from the activity. But a hobby loss cannot be deducted from another source of income. 

How to Deduct Hobby Expenses

You would need to itemize deductions on your tax return to deduct hobby expenses. Expenses can fall under 3 different types of deductions, and different rules apply to each type. 

You can bake your cake and make money too, just be sure to file it on your tax return.

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