From passion to profit: Turning a hobby into an LLC

Pasha Fooman

When one thinks of a hobby, leisure and free time may come to mind. Drawing, baking, fishing or playing video games might be perfect activities on a lazy Saturday afternoon. Though typically viewed as recreational activities, it is no secret that many of these hobbies can be profitable. Artists can sell their paintings, bakers can sell their cookies and gamers can livestream. Some even take their hobby further, elevating it to an official side business. If one is motivated enough, the benefits of doing this seem clear. One can partake in the activities one loves the most and get paid for them. What could be better? However, many people aren’t aware that making a hobby into a side business doesn’t just mean getting paid for doing what you love; it can also mean giving up less money in the form of taxes. Anyone can achieve this by turning their hobby into a business. More specifically, such tax reductions can be achieved by turning a hobby into a Limited Liability Company (LLC).

So with this in mind, what exactly is a hobby? The Internal Revenue Service (IRS) considers a hobby to be “…any activity that a person pursues because they enjoy it and with no intention of making a profit.” Of course, a hobby can become a business when someone channels said hobby into creating a product or service to sell. Often, this happens by turning a hobby into an LLC. Forbes, a leading US business magazine, defines an LLC as a company that “provides business operators the protections usually only afforded to corporations and the simplicity often only available to sole proprietorships.” LLCs are advantageous to individuals. They allow someone to take something minor, like their hobby and transform it into a side business they can run on their own, profiting from something they enjoy. Of course, being a business, an LLC affords its owner many privileges. Amongst these privileges is the ability to “write off” or deduct taxes on items or expenses that are part of the business. For owners of hobby-based side businesses, this has incredible implications. 

Take fishing, for example. Let’s say a passionate fisherman wants to turn their favorite pastime into an LLC and sell fishing equipment, such as hooks or fishing lines. Once they begin making income, they can use their privileges as an LLC to request tax deductions on their fishing equipment because that equipment is vital for testing and advertising their product. Fishing rods, bait and potentially even a fishing boat can now be deducted from these fisherman taxes. The fisherman is making money by practicing their craft and selling a related product, and they can now enjoy fishing for a reduced cost. 

Turning a hobby into an LLC is an excellent way to take a leisure activity to the next level. With enough dedication, one can make money from their hobby, and with the knowledge of the LLC system, they can use the benefits of an LLC to practice their favorite activities for lower costs. Of course, turning a hobby into an LLC places said activity under the scrutiny of the IRS, so it is important always to stay informed and consult a tax attorney for any concerns. With all this in mind, anyone can make money and spend less on activities they love.