The hobby-versus-business distinction determines whether an activity's income is subject to self-employment tax and whether its expenses are deductible; the IRS looks at profit motive using a nine-factor test.
Since 2018, hobby expenses are not deductible at all while hobby income remains taxable. Business treatment allows deductions and losses but adds self-employment tax and recordkeeping expectations.
Why it matters: miners, validators, NFT creators, and frequent traders sit on this line, and the IRS challenges losses claimed by activities that never turn a profit.
Read more: hobby and business income.
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