A listener wants to know if she has to pay taxes on the money she makes from her hobby. I’m Amy E. Feldman.
Stephanie, a listener from Pennsylvania, sells her wares at local craft fairs. She wants to know when the IRS would consider her craft hobby a business that must be taxed. In this case, Stephanie, it doesn’t really matter what you or the IRS calls it—if you earn income, you have to report it and pay taxes on it.
The question of whether an activity is a business or a hobby comes up when people want to deduct business expenses against it. In that case, the IRS would use a list of factors to make the determination and generally won’t consider it a business—so expenses wouldn’t be deductible—if, in addition to other factors, the activity has large expenses with little or no income for several years. So, maybe think of it this way: it’s great that you’re making money doing what you love, even if Uncle Sam will take some of your earnings.