Illustration of the IRS hobby vs business determination under IRC section 183 — the nine-factor profit-motive test and the 3-of-5 year profit presumption

Hobby vs Business: IRS §183 Nine-Factor Test Explained

BySW Accounting admin 06/08/202606/08/2026

Is your side activity a business or a hobby — and why does it matter to the IRS? Under Internal Revenue Code §183 (the “hobby loss” rule), if an activity is NOT engaged in for profit, you cannot deduct its losses against your other income. A real business reports on Schedule C and can deduct…

A side-by-side comparison illustration in a clean, modern style. On the left, a stressed person (a sole proprietor) holds a 'Schedule C' form that has a large red flag on it, attracting a large magnifying glass from the 'IRS'. On the right, a confident business person (S-Corp) stands behind a strong 'S-Corp' shield, which is deflecting the IRS's attention.

Business Tax

The #1 Tax Mistake New Entrepreneurs Make: Is Your Schedule C an Audit Risk?

BySW Accounting admin 10/28/202510/28/2025

Is Your Tax Form Your Biggest Risk? Starting a new business is exciting, but a simple tax form—the Schedule C—could be a giant magnet for an IRS audit. Learn the risks of being a sole proprietor and how an S-Corp can offer protection. So, you’re starting your own business! That’s fantastic. Your head is…