As you'll learn below, the IRS doesn't specifically define "trade or business" anywhere in the Internal Revenue Code. This means taxpayers sometimes have to determine if hobbies they enag

As noted above, United States tax law doesn’t really give a definition of the term “trade or business,” probably because no single definition will apply in all cases. But certainly, to be considered a trade or business, an activity must be motivated by the taxpayer’s profit motive (even if that motivation is unrealistic!) (Reg. § 1.183-2(a). Along with profit motive, the taxpayer must carry on some kind of economic activity.

In Gajewski, R v. Comm., 723 F2d 1062 (USCA 2, 12-15-83), the court held that a taxpayer who didn’t hold himself out to others as offering goods or services, wasn’t in a trade or business. Note: Taxpayer was a professional gambler who bet solely for his own account. Denial of his business deductions “above the line” turned the expenses into Schedule A deductions. The result was that minimum tax kicked in for the taxpayer.

In Ditunno v. Comm., 80 TC 363 (1983), the court ruled that the proper test of whether an individual was carrying on a trade or business required examination of all facts involved. Here a full-time gambler was determined to be in a trade or business of gambling and his gambling losses were business expenses, even though they weren’t related to offering goods and services. The taxpayer had no other gainful employment.

In Groetzinger (1987, S Ct) 82 TC 792 (1984), the Supreme Court held that a full-time gambler who bet solely on his own account was engaged in a trade or business of gambling. This prevented his gambling losses from being tax preference items for the purpose of computing minimum tax.