A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. This differs from those that operate a business with the intention of making a profit.
Many people are engaged in hobby activities that are also a source of income; for example, some people started selling handmade items during the pandemic. That income must be reported on a tax return. If you receive income from an activity that is carried on with no intention of making a profit, you have to report the income you receive on Schedule 1, Form 1040, line 8.
9 factors considered when determining whether the activity is a business or a hobby:
Whether the activity is carried out in a businesslike manner, and you maintain complete and accurate books and records.
Whether the time and effort you put into the activity shows you intend to make it profitable.
Whether you depend on income from the activity for your livelihood.
Whether any losses are due to circumstances beyond your control or are normal for the startup phase of your type of business.
Whether you change methods of operation to improve profitability.
Whether you and your advisors have the knowledge needed to carry out the activity as a successful business.
Whether you were successful in making a profit in similar activities in the past.
Whether the activity makes a profit in some years and how much profit it makes.
Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
No one factor is more important than another. All factors, facts and circumstances with respect to the activity must be considered.
Resources: Publication 17, Your Federal Income Tax Publication 525, Taxable and Nontaxable Income Publication 535, Business Expenses Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C)