Guide

Is your reselling a hobby or a business?

There is no dollar cutoff. The IRS looks at nine factors and a profit pattern.

No revenue cutoff

You may have heard that earning under $3,000 for years in a row makes it a hobby. The IRS rules do not contain that number. The IRS term is an activity "not engaged in for profit," and the question is whether you intend to make a profit.

The factors

The IRS weighs nine factors, including whether you run it in a businesslike way, your expertise, the time and effort you put in, your history of profit or loss, and whether you do it for personal enjoyment. No single factor decides it.

The 3-of-5 presumption

If you make a profit in 3 of 5 consecutive years, the IRS generally presumes it is a business. Missing that test does not make it a hobby. It means the IRS can look more closely at the factors. Form 5213 can postpone that determination, but it alerts the IRS.

Why it matters

• Hobby income is still taxable.
• Hobby expenses are generally not deductible.
• A real business can deduct ordinary and necessary expenses against its profit.

What helps show you are a business

• A separate business bank account.
• Simple books and a profit and loss statement.
• Registration with the state and a sales tax account.
• A plan to make a profit.

General information, not tax advice. Ask a CPA about your situation.