Do You Have a Business or a Hobby?
If you have a home-based business, chances are someone told you that one of the advantages to your business is that you can write off all your expenses, including things that were previously paid by you personally.
Is this true? Well that depends – and the biggest “depends” consideration is whether the IRS thinks you have a business or a hobby.
If you have a business, you can write off all your business related expenses, even if it creates a business loss.
If you have a hobby, the total amount of your business expense write off cannot exceed the income you made.
While there are no hard and fast rules that the IRS uses to determine the status of your business, there are several areas, discussed in this video, that they look at.