Hobby vs. Business: What the IRS Actually Looks At
You sold $4,200 in prints at cons last year. You spent $3,800 getting there — table fees, printing, hotels, gas, the new card reader.
So you netted $400, and that’s what you’ll pay tax on. Right?
Maybe not. If the IRS calls your table a hobby instead of a business, you pay tax on the full $4,200 and deduct none of the $3,800.
That gap is the whole reason this question matters, and the stakes went up permanently in 2026.
What changed, and why it’s worse than it used to be
Before 2018, if your activity was a hobby, you could still deduct expenses up to the amount of hobby income. Not a great deal — it required itemizing, and there was a floor to clear — but better than nothing.
The Tax Cuts and Jobs Act suspended that from 2018 through 2025. The One Big Beautiful Bill Act, signed July 2025, made the elimination permanent.
So the current rule is simple and harsh: hobby income is fully taxable, and hobby expenses are not deductible at all.
Not the table fee. Not the printing. Not the hotel.
One narrow exception matters a lot if you sell physical goods. Cost of goods sold isn’t technically a deduction — it’s a subtraction from gross receipts to arrive at gross income. So the cost of the prints you actually sold may still reduce what you report, even under hobby treatment. That’s a meaningful distinction for anyone selling merch, and it’s worth confirming with whoever prepares your return, because practitioners handle it differently.
Everything else — travel, booth fees, equipment, marketing — is gone under hobby classification.
The IRS doesn’t care what you call it
There’s no form where you declare yourself a business. No checkbox. Registering an LLC helps but doesn’t settle it.
The IRS looks at whether you’re genuinely trying to make a profit, and it uses nine factors from the regulations under Section 183 to decide:
Whether you run the activity in a businesslike way, with real books and records
Your expertise, or that of the advisors you use
The time and effort you put in
Whether the assets involved might appreciate
Your track record in similar activities
Your history of income and losses
The size of any occasional profits
Your financial situation outside this activity
How much personal pleasure or recreation is involved
No single factor decides it. They’re weighed together.
Look at the top of that list. The first factor is whether you keep books. Before expertise, before time, before profit. That’s not an accident — it’s the most objective signal available of whether someone is running a business or enjoying a hobby that occasionally earns money.
And note factor nine. Enjoying your work doesn’t make it a hobby. Plenty of profitable businesses are fun. It only counts against you when pleasure looks like the primary purpose and profit looks incidental.
The three-of-five presumption
There’s one bright line worth knowing.
If your activity shows a profit in three of the last five tax years, the law presumes you’re in it for profit. That shifts the burden — the IRS has to argue you’re a hobby, rather than you having to prove you’re a business.
Miss it and you haven’t lost. Plenty of legitimate businesses lose money for years. You just don’t get the presumption, and the nine factors carry the weight instead.
Which brings it back to records.
What “businesslike” actually means at a con table
The factors sound abstract until you translate them into a weekend in artist alley. Concretely:
A separate bank account. One account for the table, one for your life. This is the single easiest thing on the list and the one most people skip.
Sales tracked by event. Not a shoebox of receipts. What came in, what went out, per con.
Knowing your numbers per event. If someone asks whether Katsucon paid for itself, a business owner has an answer.
Prices set to make money. Priced from cost plus margin, not vibes.
Changed behavior when something loses money. This one carries real weight. Dropping a con that lost money two years running is exactly what a profit-seeking business does. Returning every year regardless looks like something else.
Records of the decisions. A note about why you dropped a show or raised print prices is evidence of profit motive.
None of that requires an accountant. It requires a system you actually keep up.
Where most artists actually land
Most people reading this are running a business and just haven’t documented it like one.
You’re not painting for fun and occasionally selling. You’re paying for tables, tracking inventory, driving to shows, and trying to come home with more than you left with. That’s profit motive. The nine factors would probably agree.
The problem is that if it ever gets questioned, you’d have to prove it — and proof means records, not intentions.
The fix isn’t a tax strategy. It’s a bank account and a spreadsheet you update on Sunday night.
Start with one number
Here’s the honest test: can you say, right now, whether your last convention made money?
Most artists can’t. Not because they’re careless — because gross sales feel like the answer and they aren’t. The cash in the drawer doesn’t account for the table, the gas, the hotel, the prints you already paid to make, or the ones that came home in the bin.
That single number — did this weekend pay — is where businesslike recordkeeping starts. It’s also the number that answers the hobby question, because tracking it is the behavior the first factor is asking about.
I wrote a free guide that walks through exactly that: the three numbers that tell you whether a con paid, the expenses that quietly eat the profit, and a Google Sheets workbook that does the math for you.
Get the free Convention Money Starter Kit — no cost, no spam, built for people selling at tables rather than running warehouses.
This is general information, not tax advice for your situation. Hobby-versus-business determinations are fact-specific, and the cost-of-goods-sold treatment above is worth confirming with your preparer. If you want help setting up records that hold up, book a call.
