The IRS doesn't base the distinction of whether you are a business on the level of activity or a certain income threshold. They look at your intent. If you intend to make a profit, then it's a business; if you don't intend to make a profit, it's a hobby. Regardless, you have to report all of your income. It is actually in your best interest to file a Schedule C and claim your business income because you can write off your expenses. A hobbyist typically cannot deduct expenses, unless they file Schedule A, and even then you lose the first 2%.
The presumption of a profit motive (i.e. your intent) comes into play if you file your taxes for several years and always claim losses and use these losses to offset your other taxable income. For example, if you "lose" $10,000 a year for three years straight and use these losses to offset the wages you earn as an employee, thereby lowering your taxable income, the IRS can audit you and disallow these losses. The theory is that a reasonable person would not continue to do something as a business that was losing money every year. In this case, they would consider you a hobbyist and disallow ALL of your expenses or limit them to the amount you can claim on your Schedule A. Since a majority of taxpayers don't itemize their deductions on Schedule A, the impact of being ruled a hobbyist means the IRS will tax you on 100% of your cake income--NOT your profit, your gross income. Ouch!
how the irs operates is not my point of reference--i am actually referencing the previous misbelief on this forum that if one were to accept money for doing a cake then that alone makes you a business that you are no longer a hobby caker--and the irs doesn't agree with that--
all the irs bladeebla is not my point at all--not my thing--
that the irs allows wiggle room for hobbyists to accept money and not be a business is my point--just that small, simple and pointed--a little parenthetical--whether it is best or safe or deductible --not my point---and there are local ordinances to have to comply with as well--but one can accept money for a hobby and not be a business according to the irs--
then beyond that there's more to the story of how to be in good standing with all the authorities of which they are legion but i'm not questioning any of that--
one can be a hobbyist and accept money for your products
Edited by -K8memphis - 11/9/13 at 4:16pm