What Makes a Hobby a Business for Tax Purposes

If your side hustle loses money year after year, the IRS might reclassify it as a hobby — and that changes everything about your tax deductions. In this episode, Lucas and Luna break down the 'hobby loss rule' under Section 183, the nine factors the IRS uses to distinguish a business from a hobby, and the critical three-of-five-years profit presumption. Using a concrete example of an online craft seller who turns a profit in year four, they explain how to document profit motive, defend deductions on audit, and avoid losing losses. They also cover hobby income reporting on Schedule 1 versus Schedule C, and what happens if the IRS decides your passion project isn't a real business. Perfect for freelancers, gig workers, and anyone with a side hustle that isn't quite breaking even. #TaxStrategy #HobbyIncome #BusinessDeductions #Section183 #IRSAudit #SmallBusiness #SideHustle #FreelanceTax #TaxPlanning #2026Tax #FexingoBusiness #BusinessPodcast #PodcastEpisode #TaxTips #EtsySeller #SelfEmployed #GigEconomy #ProfitPresumption Keep every episode free: buymeacoffee.com/fexingo