06/24/2026
🎨 Turn Your Hobby into a Side Hustle? 💸 Here’s What the IRS Wants You to Know!
With more people selling crafts, offering local services, or getting paid through apps like Venmo and PayPal, a lot of people ask: **"Is my side project a hobby or a real business?"**
It’s an important question, because the IRS treats them completely differently when it comes to your taxes!
Here is how to tell the difference and what it means for your wallet. 👇 🤔
The Big Test: Hobby vs. Business
The IRS looks at the "intent to make a profit." To figure that out, ask yourself:
1. Do you run it like a business? (Do you keep accurate books and records?)
2. Do you depend on this income for your livelihood?
3. Are you changing how you operate to try and make more money?
4. The "3-of-5" Rule: Generally, if your activity made a profit in at least 3 out of the last 5 years, the IRS presumes you are operating a business.
📊 How It Affects Your Taxes
If you make money, it’s taxable income either way. But how you report it changes everything:
If it’s a BUSINESS: You report income and expenses on Schedule C. The major perk? You can deduct ordinary and necessary business expenses to offset your income. If you have a net loss, it might even offset your other income. *(Note: Net earnings over $400 are subject to self-employment tax).*
If it’s a HOBBY: You report the earnings as "Other Income" on Schedule 1. The catch? Under current tax laws, you cannot deduct hobby expenses. You have to pay taxes on every dollar you bring in, even if you spent money to make it.
📦 Watch Out for 1099s!
Whether you’re a hobbyist or a business owner, if you accept payments through apps (like Venmo, PayPal, or CashApp) or deal in digital assets, you might receive a Form 1099-K or Form 1099-DA at the end of the year. The IRS gets a copy of these, too!
The Golden Rule: Excellent recordkeeping is your best friend. Keep your receipts, track your income, and separate your personal expenses from your side hustle.
