Determining if your startup is a business or a hobby is the age-old question the IRS asks when auditing tax returns of self-employed individuals, and even some entities. Recently, we have received this question from a number of entrepreneurs. This was a hot topic at our Tax 101 session at Venture Café in January that we discussed at great length.
Considering how popular a topic this is, especially around tax time, we would like to highlight why this is such an important question. More importantly, we will discuss how the IRS makes the determination of whether or not a taxpayer has a business or a hobby.