Is your craft selling a hobby or a business?
Is my handmade selling a hobby or a business for tax purposes?
The IRS decides hobby or business by how you run it
Whether your selling is a hobby or a business depends on whether you run it to make a profit, judged by your conduct, not by registering anything or forming an LLC.
There is no dollar line that flips a hobby into a business. The IRS looks at the whole picture of how you operate and asks whether a profit motive is really behind it. A knitter who sells a few scarves to friends each winter and a knitter with a listed shop, a supplier account and a bookkeeping spreadsheet can sell the same number of scarves and land on opposite sides.
This is also why the question comes before the LLC question. Forming an entity does not make a hobby into a business in the IRS's eyes, and staying unregistered does not make a real business into a hobby. The label follows the behaviour.
The IRS lists a set of questions for telling a hobby from a business, starting with whether the taxpayer carries on the activity in a businesslike manner and keeps complete and accurate books. — Internal Revenue Service, retrieved 2026-09-27
The factors that point a craft shop toward business
Books and records, effort spent improving profit, relevant expertise, time invested, and a track record of profit all point toward business. Personal enjoyment on its own points the other way.
Read as a maker, the factors translate into ordinary habits. Do you track what each item costs you in materials? Have you changed prices, suppliers or listings to earn more? Did you learn the trade or ask people who run shops? Does the shop take a meaningful share of your week?
The IRS also looks at the arc over time. A few losing years while a shop finds its footing are normal. Losses that go on long past the point a real business would have turned around, with no change in approach, look more like a hobby.
Enjoying the work does not disqualify you. Most makers enjoy what they make. It is one factor among several, and it weighs toward hobby mainly when the other factors are missing.
| IRS factor | What it looks like for a maker |
|---|---|
| Businesslike conduct and complete records | A ledger of sales, fees, materials and shipping |
| Effort to improve profitability | Repricing, better suppliers, reworked listings |
| Expertise or advice | Training in the craft, or advice from sellers who run shops |
| Time and effort invested | Regular production hours, not the odd weekend |
| History of income or losses | Losses that shrink over time rather than persist |
| Personal pleasure | Weighs toward hobby mainly when the rest is missing |
The IRS asks whether losses continue beyond the period normally necessary to bring an activity to profitable status. — Internal Revenue Service, retrieved 2026-09-27
The IRS asks whether the activity makes a profit in some years and how much profit it makes. — Internal Revenue Service, retrieved 2026-09-27
How hobby income and business income are reported differently
Hobby income goes on Schedule 1 of Form 1040 with no offsetting expenses; business income goes on Schedule C, where materials, fees and shipping reduce the taxable profit.
That is the practical stake. A hobbyist who sold $3,000 of pottery and spent $2,200 on clay, glaze and kiln time still reports the income, but cannot use those costs to offset other income. A business reports the same $3,000 on Schedule C and subtracts the expenses of making and selling it, including the cost of the goods themselves.
Business status brings obligations as well as deductions. Net profit on Schedule C is subject to self-employment tax once it reaches $400, which the estimated tax guide covers. Hobby income does not carry self-employment tax, but it also gives you nothing to deduct against.
Income from an activity carried on with no intention of making a profit is reported on Schedule 1 (Form 1040), line 8. — Internal Revenue Service, retrieved 2026-09-27
Individuals cannot deduct hobby losses to offset other income. — Internal Revenue Service, retrieved 2026-09-27
$400Self-employment tax is owed when net earnings from self-employment are $400 or more. — Internal Revenue Service, retrieved 2026-09-27
A Form 1099-K does not decide whether you are a business
A 1099-K reports payments that passed through a platform. It says nothing about whether those payments came from a hobby, a business, or the sale of old personal things.
Sellers often read the form as a label, and it is not one. The same form can reach a full-time maker, a hobbyist, and someone clearing out a closet. What you owe depends on what the payments were, which is why the IRS gives different reporting routes for business sales and for personal items sold at a loss.
The 1099-K page walks through the current reporting threshold and how to handle a form that covers a mix of sales.
The IRS directs self-employed people and sole proprietors to report Form 1099-K payment information on Schedule C (Form 1040). — Internal Revenue Service, retrieved 2026-09-27
What being a business does and does not require you to file
Being a business for tax purposes requires no entity and no state filing. You are a sole proprietor, and you file Schedule C and Schedule SE with your own return.
That is the contrarian point this site keeps returning to. Crossing from hobby to business changes your tax forms, and it may trigger a seller's permit or a local business license depending on where and how you sell. It does not, by itself, require an LLC. The registration guide lists the state and local filings, and whether you need an LLC yet covers the entity question on its own terms.
The IRS defines a sole proprietor as someone who owns an unincorporated business by themselves, filing Schedule C and Schedule SE with Form 1040. — Internal Revenue Service, retrieved 2026-09-27
Start keeping records now, whichever side you land on
Keep a simple ledger of every sale and every cost from today. It is the first IRS factor, it is what Schedule C needs, and it costs nothing.
A spreadsheet is enough: date, item, sale price, platform fees, shipping, and the materials that went into it. Keep receipts for supplies in one folder. If the shop turns out to be a hobby, you have lost nothing. If it is a business, you have the records that support every deduction and the evidence of businesslike conduct the IRS asks about first.
Then decide how you will pay the tax on the profit. The cost breakdown shows what a small shop spends each year before tax enters the picture.
The IRS asks whether the taxpayer maintains complete and accurate books and records as part of the hobby-versus-business test. — Internal Revenue Service, retrieved 2026-09-27
Questions
Is there a sales amount that automatically makes my crafting a business?
No. The IRS does not use a dollar threshold for this. It weighs how you run the activity, including records, effort to make a profit and your history of income or losses. The 1099-K threshold is a reporting rule for platforms, not a business test.
Can I deduct my craft supplies if my selling is a hobby?
Not against other income. The IRS does not allow hobby losses to offset other income, so supply costs only matter for tax if the activity is a business reported on Schedule C, where they reduce the taxable profit.
Do I need to register anything to be treated as a business?
Not for federal tax. A sole proprietor files Schedule C with a personal return and needs no entity. States and cities may still require a seller's permit or local business license depending on where and how you sell.