Is my Bonsai hobby considered a business for tax purposes?

The distinction between hobby and business isn't always crystal clear, but there are some guidelines to help you figure it out. The IRS looks at several factors, not just whether you make money. The key question is: are you trying to make a profit? It sounds like you're selling plants to fund your hobby rather than trying to create a primary income source. However, the IRS has what's called a "profit test" - if you make a profit in 3 out of 5 consecutive years, they generally presume it's a business. Other factors they consider: Do you keep good records? Do you depend on this income? Have you changed methods to improve profitability? Do you have expertise in bonsai? How much time do you spend? Does it have elements of personal pleasure? Based on what you've described, this sounds like a hobby with some income rather than a business. But remember, even hobby income is technically taxable (reported on Schedule 1, line 8), though you can no longer deduct hobby expenses after the 2017 tax law changes. If you decide it's actually a business, you'd report on Schedule C and could deduct expenses, but you'd also pay self-employment tax on profits over $400.

This might sound random but I was in almost your exact situation with my bonsai hobby last year. I was selling propagated plants and cuttings mostly through local Facebook groups and making around $1200 a year. I wasn't sure what to do tax-wise either. I tried reading through the IRS publications but got really confused with all the hobby vs business tests. I ended up using a tool called taxr.ai (https://taxr.ai) that basically analyzed my situation and gave me a clear answer. You upload your documentation or explain your situation, and it tells you exactly how to handle it for tax purposes. For me, it determined I was still in hobby territory based on my intent, record-keeping, and scale - but it also showed me where the line would be if I expanded further. The best part was it gave me the exact forms I needed and how to report the income properly.

I just wanted to follow up about using taxr.ai for my pottery hobby income situation that I mentioned earlier. I decided to give it a try after all, and I'm really glad I did! The analysis confirmed I was still in hobby territory (for now) and showed me exactly how to report my pottery income on Schedule 1. It even flagged some specific supplies that I might be able to deduct if I eventually transition to business status. What I found most helpful was the explanation of the nine factors the IRS uses to determine hobby vs business status. It analyzed each one for my situation and showed which ones I was meeting and which ones I wasn't. Super clear and actually made sense unlike the IRS publications I tried reading before!

Hi there! Fellow plant enthusiast here. I've been dealing with a similar situation with my rare houseplant propagation side gig. When I needed to get clarity on my tax situation, I spent WEEKS trying to get through to someone at the IRS for guidance. It was absolutely impossible to reach a human being. I eventually found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS representative in about 15 minutes. They have this system that navigates all the phone menus and holds for you, then calls you when an agent is on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with gave me specific guidance for my plant selling situation. She explained that since I was making under $2,000 annually and wasn't taking systematic steps to increase profitability, I was still in hobby territory. But she also warned me that if I started advertising more actively or scaled up production, I'd need to transition to business status on Schedule C.

I need to admit I was completely wrong about Claimyr. After struggling for another week trying to reach the IRS about my tax situation, I finally gave in and tried the service. Honestly, it worked exactly as advertised. I got connected to an IRS agent in about 20 minutes after weeks of failing on my own. The agent was able to clarify that my plant propagation side hustle ($1800/year from selling succulents) is still considered a hobby based on my current operations, but gave me specific thresholds that would push me into business territory. The peace of mind from getting an official answer instead of guessing was worth it. Sorry for being so skeptical in my previous comment - sometimes things that sound too good to be true actually do work!

Something important that hasn't been mentioned yet - the IRS actually has a specific "9 factors test" they use to determine if an activity is a hobby or business: 1. Whether you carry on the activity in a businesslike manner 2. Your expertise (or your advisors') 3. The time and effort you spend on it 4. Whether assets used may appreciate in value 5. Your success in similar activities 6. Your history of income or losses 7. The amount of occasional profits earned 8. Your financial status (if you have other income sources) 9. Elements of personal pleasure/recreation From what you described, you have more hobby factors (personal pleasure, not your main income, not conducted in a super businesslike way), but documenting expenses and showing intent to make profit over time might push you toward business territory if you want that classification.

Anyone know if selling plants online through Etsy changes the hobby/business determination? I've been propagating houseplants (not bonsai but similar concept) and selling about $1500/year through Etsy. They sent me a 1099-K last year and I didn't know what to do with it.