Getting started - hobby or home business?

I heard an interesting comment a few weeks ago about how to tell the difference between a true business and a hobby.  What I heard was that the difference is a business "makes money", and a hobby "costs you money". 

I thought that was fascinating because oftentimes in the first months to several years of a new business, it does cost us money!  So are we taking our businesses seriously?

It's interesting that the IRS has it's own stipulations for determining the difference between a hobby or a business at this link to determine if you can take the necessary business deductions.  So, I decided to use IRS' questionnaire to help me - and you - determine if you are taking your "business" seriously:

Does the time and effort put into the activity indicate an intention to make a profit?
This was an interesting question because it's not always the case.  Some of us say we are in business, we pass out business cards and we mail a few things, but we are afraid to approach people, ask for the sale or pick up the phone.  We think it is supposed to be easier than it ends up being.  We underestimate the impact a new business has on our daily lives.  A business is all about activity.  Do your actions speak louder than words? 

Does the taxpayer depend on income from the activity?
Well, not really... Most of us start our sideline business on the side so that we can still pay the bills and put food on the table, right?  Well, not depending on the money sometimes means we take it for granted and do not take it seriously.  The IRS seems to think so, too.  When we are financially vested and we stand to lose something, we tend to place a higher value on it, work to keep it, fight to build it.  What does your business mean to you?

Has the taxpayer improved the method of operation to improve profitability?
Wow, now there's a question!  Did we implement change?  Most of us have trouble with this one because we keep doing what we are doing and expecting different results.  I have heard that mentioned as the definition of insanity.  I guess the IRS thinks so, too!  When you do something and it doesn't work, give it a minute and then move on to something else.  Not everything is going to work for everybody.  Be persistent and try different things and determine for yourself what works for your business.  No matter what, keep moving!  The only thing that is certain is change.

Does the taxpayer or his/her advisers have the knowledge needed to carry on the activity as a successful business?
I think this one might be the most important one of all.  Most of us enter business because we are experts in our fields.... but are we experts in business?  Do we know how to market ourselves and our business?  Do we have what it takes to pound the pavement if necessary?  Are we humble enough to downsize our lives to spend the money we need to spend on advertising and promotion?  Do we truly know how to lead, coach and manage people?  Are we ready to learn and are we teachable?

There are a few more, but I think you probably got the picture.  So, is your business a hobby or a business?  If you are leaning in the hobby direction, you may want to take a look a how you can make a positive impact, how to spark some daily activity, how to learn all you need to know, and how to get to profitability.  Hopefully, this blog will help you get there.

To your success!

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