Hobby vs business factors — EA Part 2 Widgets

What this does

How to read it Visual: factor bars and a big lean meter — substance over labels.

Watch out Check factors that lean toward business (profit motive).

Score the nine hobby-vs-business factors. A high business lean supports Schedule C loss treatment; hobby treatment limits loss write-offs.

Visual: factor bars and a big lean meter — substance over labels.

Factor checklist (Reg. §1.183-2 themes)

Manner: books, separate accounts, businesslike operations
Expertise: taxpayer or advisors have expertise
Time & effort substantial
Expectation that assets will appreciate
Success in similar activities
History of income / occasional profits
Amount of occasional profits meaningful vs losses/effort
Financial status: not relying on activity for recreation only
Elements of personal pleasure / recreation dominate

Gross income from activity Expenses

Teaching lean

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Business score

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Loss deductibility

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Business lean—

Checked factors · business lean

Exam trap: Hobby losses are not deductible against other income; expenses limited (historically to income from the activity, subject to current law nuances). Presumption themes around profit in 3 of 5 years exist but are not automatic. Substance over labels.

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Study tool only — not official IRS software. Figures labeled 2025 track law/forms through Dec 31, 2025. Confirm against current IRS pubs before the exam.