The IRS considers your activity a business if you’re actively trying to make a profit. A few signs that might indicate this include:

• You depend on the income from the activity.
• You invest time and effort in the activity with the intention to make it profitable.
• You’ve made a profit from similar activities in the past.
• Your activity shows profit in at least 3 of the last 5 years.
• You adjust operations to improve profitability.
• You have the knowledge or expertise to make the activity successful.

If your activity doesn’t meet these criteria, it may be classified as a hobby, which means you can only deduct expenses up to the amount of income you earned from it. On the other hand, if it’s treated as a business, you can deduct losses to offset other income.

It’s also important to keep good records of your income and expenses to back up your business intent, in case the IRS ever audits you. Depending on how things go, you may want to formally structure your activity as a business, like a sole proprietorship or LLC. Keep in mind that running a business also means paying self-employment taxes, which cover Social Security and Medicare.

Lastly, if you’re transitioning from hobby to business, make sure you adjust how you manage your finances and reporting. And when in doubt, it’s always a good idea to talk to a tax professional to help you stay on track with IRS requirements and potential deductions.