Is your blog or side project a hobby or a business? It’s one of the most common questions in the online business world, and the answer matters more than most people realize, especially at tax time.
The IRS treats a hobby and a business very differently. Get the classification wrong, and you could miss out on legitimate tax deductions or, worse, run into trouble during an audit. The good news: you can determine whether you have a hobby vs business by working through a clear set of questions and a few practical steps.
In this guide, you’ll learn how the IRS distinguishes a hobby from a business, the 9-factor test the IRS uses, and six things you can do today to set yourself up as a legitimate business.
Why the Hobby vs Business Distinction Matters
When you classify your activity as a business, you can deduct ordinary and necessary expenses against your income. When the IRS classifies it as a hobby, the rules change:
- You must still report all income you earn from the activity.
- You generally cannot deduct hobby expenses on your federal return (under current tax law).
- You lose access to common write-offs like home office, mileage, software, and supplies.
That gap can mean thousands of dollars on your tax bill, which is why understanding the difference between a hobby and a business is essential for every blogger, creator, and side hustler.
How Do You See Your Blog or Side Project?
Before the IRS weighs in, ask yourself an honest question: how do you see your activity?
- Is it a creative outlet you do for fun, with income as a nice surprise?
- Or are you actively building it to generate a profit and replace or supplement your income?
If you sell crafts, share patterns, or post tutorials purely because you enjoy it, you may be operating in hobby territory, even if you earn a little money. If you’re treating it like work, with goals, systems, and a profit motive, you’re likely running a business.
Your mindset matters, but it isn’t the whole picture. The IRS looks at how you operate, not just how you feel about your work.
Are You Actually Making Money?
The single biggest factor the IRS considers is profit motive: are you trying to make money, and are you doing the things a real business would do to earn it?
Income can come from many sources, including:
- Products you create and sell (digital downloads, printables, physical goods).
- Services you offer (coaching, freelancing, consulting).
- Affiliate sales for products other people created.
- Ad revenue, sponsorships, and brand partnerships.
You don’t have to be profitable every year to qualify as a business. But you do need to be working toward profit in a documented, businesslike way.
The IRS 9-Factor Test for Hobby vs Business
The IRS uses nine factors to decide whether your activity is a business or a hobby. No single factor is decisive, but the more “yes” answers you have, the stronger your case as a business.
Here are the nine factors, paraphrased from the IRS:
- Do you carry on the activity in a businesslike manner and keep complete, accurate books and records?
- Does the time and effort you put in show that you intend to make a profit?
- Do you depend on the income from this activity for your livelihood?
- Are any losses due to circumstances beyond your control (or normal startup losses)?
- Have you changed your methods to try to improve profitability?
- Do you (or your advisors) have the knowledge needed to run this as a successful business?
- Have you made a profit in similar activities in the past?
- Does the activity make a profit in some years, and if so, how much?
- Can you reasonably expect future profit from the appreciation of assets used in the activity?
Walk through each one and answer honestly. If most of your answers point to a profit motive and businesslike operations, you have a business. If most lean toward “I do this for fun and don’t really track anything,” you may have a hobby.
6 Ways to Set Yourself Up as a Legitimate Business
If you want to be treated as a business by the IRS, you need to operate like one. Here are six steps that strengthen your position and make profitability more likely.
1. Register Your Business With the State
Form an LLC, partnership, or corporation that fits your situation. Sole proprietorships are simplest, but a formal entity can offer liability protection and signal that you’re serious. Work with an accountant or attorney to choose the right structure.
2. Open a Separate Business Bank Account
Mixing personal and business expenses is one of the fastest ways to look like a hobbyist. Open a dedicated business checking account, run all income and expenses through it, and use a business-only debit or credit card.
3. Keep Clean, Consistent Records
Use accounting software (or a well-organized spreadsheet) to track income, expenses, mileage, and receipts. Good books make tax time easier and serve as evidence of businesslike operation if you’re ever audited.
4. Stay Compliant With Taxes
File the right federal, state, and local returns. Pay quarterly estimated taxes if you owe them, collect sales tax where required, and issue 1099s to contractors when applicable.
5. Build a Real Plan to Make a Profit
Write a simple business plan that outlines your offers, pricing, marketing, and revenue goals. Update it as your business evolves. A documented plan is one of the strongest signals of profit motive.
6. Treat It Like a Business Every Week
Set work hours, hit deadlines, market consistently, and review your numbers monthly. Working only when you feel like it is the clearest sign of a hobby. Showing up consistently is the clearest sign of a business.
Hobby vs Business: A Quick Comparison
| Factor | Hobby | Business |
|---|---|---|
| Primary motive | Enjoyment | Profit |
| Recordkeeping | Casual or none | Complete and accurate |
| Income reporting | Required | Required |
| Expense deductions | Generally not allowed | Allowed (ordinary and necessary) |
| Time investment | Sporadic | Consistent and intentional |
| Business structure | None | LLC, S-corp, partnership, or sole prop |
So, Do You Have a Hobby or a Business?
Run yourself through the IRS 9-factor test, look honestly at how you’re operating, and check whether you’ve taken the six steps above. If you started your blog or side project to build real income, set it up that way from day one. The structure you put in place now determines the deductions, protections, and growth you’ll have access to later.
If you treat it like a business, the IRS is far more likely to treat it like one too.
Frequently Asked Questions
How does the IRS decide if my blog is a hobby or a business?
The IRS uses a 9-factor test that looks at profit motive, recordkeeping, time invested, expertise, and history of profit. No single factor decides it, but the overall pattern does.
Can I deduct expenses from a hobby blog?
Under current federal tax law, hobby expenses are generally not deductible, but you still must report the income. That’s why classifying your activity correctly matters.
How many years can I lose money before the IRS calls my business a hobby?
The IRS uses a “presumption of profit” guideline: if you earn a profit in 3 of the last 5 years, your activity is presumed to be a business. Losing money longer doesn’t automatically make it a hobby, but it shifts the burden to you to prove profit motive.
Do I need an LLC to be considered a business?
No. You can operate as a sole proprietor and still be a business in the eyes of the IRS. An LLC adds liability protection and professionalism but isn’t required for tax classification.
Disclaimer: This article is for general information and isn’t tax or legal advice. Tax rules change and individual situations vary. Talk to a qualified accountant or tax professional before making decisions about your business.