The answer to this question will drive which tax forms you file related to your SU! activities.
Take 15 minutes today to learn more about how the IRS looks at your activities as a SU! demo to determine if it's a hobby or a business.
In order to make this determination, taxpayers should consider the following factors:
Does the time and effort put into the activity indicate an intention to make a profit?
Do you depend on income from the activity?
If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
Have you changed methods of operation to improve profitability?
Do you have the knowledge needed to carry on the activity as a successful business?
Have you made a profit in similar activities in the past?
Does the activity make a profit in some years?
Do you expect to make a profit in the future from the appreciation of assets used in the activity?
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year. (But the inverse is not necessarily true - you can claim a loss for longer than 3 years as long as you are trying to make a profit.) If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income.
So what form do you file?
Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040) Itemized Deductions. The amount of deductions you can take will be limited to the amount of income you made (ie. You cannot claim a loss - but you can reduce any income you made down to zero, depending on your expenses.)
Deductions for business activities are claimed on Schedule C (Form 1040) Profit or Loss from Business. You can claim a loss on your income taxes for your business and that will reduce the overall taxes you pay on income from other sources (such as your regular job or your spouse's job).