When is a business a hobby and when is it a business?

Answer 1

Fishing is my hobby. If I started a guide service and was paid for fishing then it would be a business.

Answer 2

IRS has the best explanation of when they consider a business a business or a hobby http://www.irs.gov/newsroom/article/0,,id=172833,00.html

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Do you run the activity in a businesslike manner?
Does the time and effort you put into the activity indicate an intention to make a profit?
Do you depend on income from the activity?
If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
Have you changed methods of operation to improve profitability?
Do you or your advisors have the knowledge needed to carry on the activity as a successful business?
Have you made a profit in similar activities in the past?
Does the activity make a profit in some years?
Can you expect to make a profit in the future from the appreciation of assets used in the activity?
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Per the IRS "An activity is usually considered a business if it makes a profit during at least three of the last five tax years, including the current year."

Answer 3

It's a business when your intent is go make a taxable profit. It's a hobby if your intent is not to generate a taxable profit.

If the IRS determines that your pursuit is a hobby and not a business, your business expense deductions are limited to the income received. You will not be allowed to claim a business loss against other income.

Answer 4

when the owner cares about his company and how it is run for his benefit not for the consumer.

hobbiests carry merchandise that they love;
businesses carry merchandise that the
consumer loves.

hobbiests have no biz plan.