See yesterday’s post about hobbies and their potential problems. Now how to turn you hobby into a business:
1. Carry on the hobby in a business-like manner (you could have a separate checking account for your business, plus maybe register a dba and name your business.)
2. You put time and energy into the business that shows you want to make it profitable.
3. You need the money to live on (this by itself shows a for profit motive)
4. Your losses are beyond your control or they are normal in startup phase of business (say the economy turned against you or you had computer problems).
5. You or the advisors you use have the knowledge to carry on a successful business, It is just taking a little time.
6. You have had some success in this activity before.
The more of these items you do the better chance you have of having a business instead of a hobby. One more thing – The IRS looks for profit motive by seeing a profit in 3 out of 5 years, so it makes sense to have profitable years.