What is the difference between having a hobby that you get paid for, and being a business owner?

The IRS states that having “a hobby is any activity that a person pursues because they enjoy it, with no intention of making a profit,” and you may happen to receive a form of compensation. With having a hobby and receiving compensation, it typically is not your primary source of income. Then there is having a business. Operating, growing, and maintaining a business requires more than just enjoyment and love for something. With having a business, it is with the intent to make a profit. It includes lots of commitment, planning and responsibility compared to getting paid for a hobby. 

Which one are you? 

Do you care for animals as a hobby, or are you caring for animals as a business? Let’s take your hobby/business and call it an activity that you do. Ask yourself the following questions:

• Do you carry out the activity in a businesslike manner, and maintain complete and accurate books and records? 

• Do you put in time and effort into this activity with the intention of making it profitable? 

• Are you insured? 

• Do you have procedures and policies in place? 

• Do you pay taxes on this activity?

• Does your livelihood depend on the income coming from the activity?

• When something goes wrong with the activity, do you take responsibility? 

• Are you conducting this activity with the primary intent of it being cool, fun, relaxing and enjoyable?

If you answered ‘no’ to one or many of the first seven questions, then you are running a hobby. If you answered ‘yes’ to most of the questions, or an ‘eh, I’m working on it’ or ‘we are in the process of having that,’ then great! Is it bad that you are running a hobby, absolutely not! All are welcome in the pet care industry, but it does effect your taxes, customer’s expectations and your marketing. 

Now if you are trying to start your pet business and want it to be a legitimate business, start with these three steps: 

• Register as a formal business entity
  
  When you are starting out, this isn’t required at first but it has great benefits when doing so. It establishes your business as a legitimate business that will offer you “tax benefits, legal benefits, protection from personal liability,” and assistance when it comes to financing.
  
  

• Insure your business & the pets!
  
  NAPPS has a connection with a broker to help you receive discounted insurance in order to protect yourself, your clients, your team, and your business. You may find this information under the Member Benefits section. Insurances to consider having is pet care insurance (Pet Care Insurance [PCI] or Pet Sitter Associates), worker’s compensation insurance, property insurance, auto insurance, and bond insurance.
  
  

• Create & establish a service agreement and clear policies
  
  This is for your clients to understand how your business operates, but this is also for you to protect yourself and to set boundaries! As new business owners we all experience the need to say yes to everything and to bend the rules. It is so important that you learn how to say no early on, and how to stick to your boundaries. Your future business self will thank you for it. It is a problem that most pet care professionals struggle with.
  

For more resources on starting, growing and maintaining your pet business – make sure to be tuning into the monthly NAPPS webinars, and watching your email for new blog posts if you’re subscribed to the newsletter!  

Sources: 

https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax-purposes

https://resources.liveoakbank.com/blog/why-you-should-register-your-business

Kylie Holliman-Rivera

Owner of Fire Hydrant Pet Sitting Co., LLC 

Dedicated NAPPS Volunteer