Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?

Question

Whether the activity is enjoyed by the taxpayer.



The expertise of the taxpayers or their advisers.



The time and effort expended.



The relationship of profits earned to losses incurred.



All of the above are relevant factors

Answer 1

I would trust more the definition of IRS as to whether an activity is profit seeking or a hobby. From the IRS website the factors considered are http://www.irs.gov/businesses/small/article/0,,id=99239,00.html

1. You carry on the activity in a business-like manner,
2. The time and effort you put into the activity indicate you intend to make it profitable,
3. You depend on income from the activity for your livelihood,
4. Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),
5. You change your methods of operation in an attempt to improve profitability,
6. You, or your advisors, have the knowledge needed to carry on the activity as a successful business,
7. You were successful in making a profit in similar activities in the past,
8. The activity makes a profit in some years and the amount of profit it makes, and
9. You can expect to make a future profit from the appreciation of the assets used in the activity.

In your list, the first one - enjoyment of the taxpayer - is not a factor.

Answer 2

All the factors would be relevant except:
* Whether the activity is enjoyed by the taxpayer
Just because you enjoy your business does not make it a hobby.

Lack of expertise could be indicative of hobby vs profit venture, time/effort could be large on a hobby but lack of time/effort would appear to indicate no interest in a for profit venture, low profits could be indicative of either but high profits makes it a profit-making venture even if the person is not incorporated.

Answer 3

HOBBIES DO NOT GENERALLY GENERATE REVENUE. IF YOU SELL SOMETHING THAT YOU MAKE, THEN YOU HAVE TAXABLE INCOME. IN MANY CASES THESE ARE "OCCASIONAL SALES, SSUCH AS AN ELDERLY WOMAN SELLING HANDCRAFTED AFGHANS. AS THESE ARE CASH TRANSACTIONS, THEY ARE ALMOST IMPOSSIBLE FOR IRS TO TRACE. BUT IF YOU GENERATE CONSIDERABLE REVENUE FROM ANY ACTIVITY, YOU RUN THE RISK OF IRS "CATCHING YOU" AND SENDING YOU A BILL FOR TAXES, INTEREST AND IN SOME CASES PENALTIES FOR FAILURE TO REPORT INCOME. I WOULD ADVISE GOING TO YOUR LOCAL CPA IN THIS CASE. GOOD LUCK JOANN CPA