Hobby vs Business Distinction
The determining factor between a hobby and business is profit earned or intended. If charging only covers expenses, it’s a hobby. If making significant, consistent money above expenses, set up a small business and get finances straight with the ATO.
Tax Implications
For taxes, it matters whether activities are commercial. If selling over $75 without an ABN, the buyer must send 47% of payment to the ATO.
Hobby to Business Transition
A cafeteria owner making coffee. When is a hobby a business? The IRS suggests an activity is a business if: it functions to profit; generates income all year; losses are unavoidable start-ups; methods improve profitability; enough knowledge to succeed; previous activities were profitable; sometimes profits.
Additional Information:
- I’ve been told to register for GST intending profit. But registering a business is expensive starting out.
- Common potentially profitable hobby businesses are photography and animal care. But hobbies are personal passions. Hobbies and businesses differ financially.
- You must pay taxes on side hustle income. If no profit in three plus years, the IRS may say your business is a hobby.
- If side hustle earns over $600 a year, report it on your taxes. The IRS considers you earning income.