There are nine factors the IRS uses to help taxpayers determine whether they had a profit motive for a specific activity. Below, you'll find tax regulations for both not-for-profit hobbies and for-profit hobbies.

Although this guide's title is Profit Motive, these rules are also commonly referred to as the hobby loss rules. Under the hobby loss rules, where an activity of the taxpayer is deemed to be a hobby (not for profit) the income is reported on line 8i (activity not engaged in for profit income), Schedule 1, of the 2024 Form 1040 and any deductions, limited to the extent of the income, are reported as an itemized deduction on Schedule A. Since such an activity generally has no profit there are no SE tax issues.

However, under TCJA, tier 2 miscellaneous deductions are suspended for years 2018 through 2025. Therefore, for those years, hobby expenses will not be deductible, making the entire income from a hobby taxable.

Sporadic or one-shot deals, hobbies, or diversions are not a trade or business and therefore not subject to SE tax (Commissioner v. Groetzinger, SCt, 87-1 and Langford v. Commissioner, Dec. 44,891(M), TC Memo. 1988-300, aff'd, CA-6,). Thus, a hobby is taxable for income tax purposes but not for self-employment tax.