Hobby or business?

[Carliann3]

I started buying used lawn mowers from garage sales, estate sales, and Facebook marketplace 2 months ago. I repair them and then resell them on Facebook marketplace. I still work my full-time job. This started as just a way to occupy my time and make some extra money on the side, but now I’m wondering if I should be keeping track of the expenses and income to report this on my 2022 taxes. Is this considered a hobby or a business? How long will I have to do this for or how much income will I have to make for it to be considered a business if it’s not already? I don’t know anything about reporting additional income, everything I have googled is ambiguous, and I do not want to get penalized for doing things incorrectly.

[Mike9241]

see this link where the IRS puts forth criteria.

https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax... 

under IRC code sec 183(d) an activity is presumed by the IRS to be for profit if it generates net income in 3 out of 5 consecutive years ending with the current year. 

but your activity hasn't been around for 3 years.  it's up to you to determine whether you're trying to achieve and will likely be profitable.

even if after 5 years, if you have not had a profit in 3 years and the IRS audits and concludes it's a hobby that can be refuted if you can show how you'll turn things around.  things that could be used include a written plan where you detail the steps needed and how to accomplish this. 

[rjs]

Whether it's a hobby or a business, you have to report the income on your tax return. The difference is whether and how you can claim expenses, and whether you can claim a loss. If you are doing it to "make some extra money," that sounds like you intend it to be profitable, which is one of the factors that suggests it's a business.

There's no minimum amount of time that you have to conduct the activity in order for it to be considered a business. If you're starting a new business, it's a business the first day. And there's no minimum amount of money that you have to make in order for it to be considered a business. As long as you make a profit most years, you can consider it a business. If you claim losses for several years in a row, the IRS might question whether you are seriously running it as a business.

[Opus 17]

What matters is your intent, not how much profit you make or how long you are involved in the business.

If you are engaged in an ongoing trade or business, and you conduct your affairs in a businesslike manner (you advertise, you seek out opportunities to buy and sell items, etc) then you are probably a business, even if small.

It does sound like this should be reported as a business.

Reporting as a business means you pay income tax on the net profit and also self-employment tax (an extra 15%).  But it also means that you can deduct certain expenses that are not deductible if the activity is a hobby, and you get credit towards your retirement or disability with the social security administration.  (You may have other tax benefits open to you depending on your other circumstances, like a self-401k or health insurance premium credits.)