For as long as you can remember, you’ve been building wooden birdhouses or sewing tote bags or hand pouring candles from scratch—simply because the act of making brings you joy.
But over time, you’ve become somewhat of an expert at your craft, prompting friends and family to “ooh” and “aah” over your work and strangers to demand, “Take my money!” Maybe you’ve even dabbled in selling, either through a local marketplace or to friends for cash.
It’s probably time to ask yourself: Could this hobby become a business? There are many factors to consider before taking the leap.
There are several benefits to turning your hobby into an honest-to-goodness brand. Here, we’ll outline the differences between hobbies and businesses, the legal and financial implications of making the switch, and the steps you can take to turn a hobby into a business today.
How to turn a hobby into a business
There are some fairly common hobbies you can monetize—selling finished handmade goods, like knit wool mittens at a craft market, for example. But most hobbies have a marketable angle. Musicians can sell samples or teach guitar classes. Gamers can join the creator economy and build a business around streaming. Gardeners can grow seeds into seedlings to sell or harvest fruit to make jams and pies to supply local restaurants.
To turn a hobby into a business, there are a few questions to ask yourself about your motivations and the viability of your idea. You may also need to make changes to your workspace, ride a business learning curve, and consider funding options. We’ll get to that later. First, let’s define the difference between a hobby and a business.
Hobby vs. business: what’s the difference?
In some cases, a hobby and a business can be one and the same. Your hobby is the thing you engage in after work hours and in your spare time, but you also may exchange the results of those hobbies for cash.
In the eyes of the government, that hobby income is real income that you may need to claim. The true difference between a hobby and a business comes down to tax law. The laws vary from country to country and depend on many factors. For example:
- In Canada, it’s possible to earn money from a hobby, provided your earnings are far outweighed by your material costs. However, if there is an intention to turn profit, you may be entering a grey area with the CRA.
- In the US, the IRS looks at the intention to turn a profit and history of profit. If you have profited from your hobby in at least three of five consecutive years, the IRS will see this as intentional and, therefore, qualify your activity as a business.
While claiming income may seem like a hassle or a downside, the benefits to upgrading your hobby to a business can balance the negatives. Business owners can claim expenses like material costs, a portion of utilities (for home-based businesses), or other specific expenses applicable to the particular business—hobbyists cannot. And in some cases, if your annual income from the business falls under a certain threshold you may be exempt from paying certain types of tax.
Once you make the distinction that your hobby is now a venture, tracking and organizing your business finances will set you up for success at tax time.
🛑 Note: This information is general and not intended to replace the advice of professionals. It’s important to check with the revenue agency in your country or consult an accountant or lawyer before you launch your business and when you file taxes.
Questions to ask before starting a hobby business
Before you take the necessary steps to turn your hobby into a business, there are a few questions to ask yourself to understand if the move is right for you.
Does your hobby have the potential to become a viable business?
Your hobby may be close to your heart, but are there others who share your love of this craft? Validating your product idea through research will help you determine if there’s demand for what you’re offering and if you are bringing value to the market. This is also where you ask yourself if your hobby is sustainable as a business—is it something you can scale?
Your business doesn’t necessarily need to scale exponentially. If you’re in it for the love of your craft, a business can serve as a way to pay for itself or generate a little extra spending money.
Are you in it for love, money, or both?
A common pitfall for those who turn their hobbies into businesses is that the thing that once brought distraction from work and stress can suddenly become work and stress. When your craft is a hobby, you only answer to yourself. Expectations from customers, vendors, and retail partners can add pressure. Is your hobby something you will still enjoy if it becomes your full-time gig?
Your business doesn’t necessarily need to scale exponentially, however. If you’re in it for the love of your craft, a business can serve as a way to pay for itself or generate a little extra spending money.
Will your hobby become a side hustle or a full-time business?
It’s possible to keep your business small, running it on the side while you still work. Consider whether this is enough or if you plan to scale your hobby into a full-time business. It may also become your early retirement plan as you transition to an income source that’s more flexible with fewer hours.
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