The IRS test for whether an activity is a business (losses deductible) or a hobby (income taxable, expenses not deductible since 2018). The presumption is a business if it shows a profit in three of five years, but the real test is profit motive.
Crypto mining, content creation, reselling, and side ventures all live near this line. A hobby with $8,000 of income and $9,000 of costs pays tax on $8,000 and deducts nothing. Records, a business plan, and a separate account are what support the business position.
Nine factors, led by whether you run it in a businesslike way, depend on the income, have expertise or seek it, and have a history of profit. No single factor decides.
Source: IRC 183; Treas. Reg. 1.183-2(b)
Last reviewed September 17, 2026. Tax rules change; confirm current law before acting.
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