Q: My little hobby is starting to make some decent money. How do I tell when I have a business with tax reporting obligations?
A: According to the Internal Revenue Service, an activity generally qualifies as a business if it is carried on with the reasonable expectation of earning a profit.
The profit motive is key in determining whether you have a business or a hobby. Many who have hobbies do so for the enjoyment despite the cost. With a business, the primary objective is to make a profit, and if you don't, you most likely would choose not to continue it.
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer's trade or business.