According to different surveys, it seems that almost two out of five Americans have a side hustle. The pandemic, expansion of remote work, and the increase of living cost (inflation) has increased the number of people working on the side in addition to their regular job.
We had numerous conversation with our clients to determine if they are a) a business or b) a hobby. The determination is based on several factors, probably the most relevant is the revenue generating factor, but the article from Tax Adviser lists other ones:
- The manner in which the taxpayer carries on the activity;
- The expertise of the taxpayer or their advisers;
- The time and effort expended by the taxpayer in carrying on the activity;
- The expectation that assets used in the activity may appreciate in value;
- The success of the taxpayer in carrying on other similar or dissimilar activities;
- The taxpayer’s history of income or losses with respect to the activity;
- The amount of occasional profits, if any, that are earned;
- The taxpayer’s financial status; and
- Elements of personal pleasure or recreation.
If the side hustle or activity is consider a hobby as it might lack the profit motive or continuity, then, the tax authorities will disregard the expenses for that activity (no longer deductions).
Survey Bankrate – Article May 2023 – https://www.bankrate.com/personal-finance/side-hustle-survey/#:~:text=Nearly%20two%20in%20five%20(39,isn’t%20for%20fun%20money.
Survey Lending Tree – Article December 2022 – https://www.prnewswire.com/news-releases/44-of-americans-have-a-side-hustle-amid-inflation-most-popular-with-gen-zers-301697437.html
Article from the Tax Adviser – https://www.thetaxadviser.com/newsletters/2023/may/is-it-a-trade-or-business-or-a-hobby-or-investment.html?utm_source=mnl:cpal&utm_medium=email&utm_campaign=24May2023
