Hobby or business: how US taxes treat home packing work

You pack orders after your day job, enjoy the routine and earn a modest amount. None of those facts, alone, decides whether the activity is a business for federal tax purposes. The practical question is whether you pursue it with a profit objective and whether your actions support that objective. Calling it a hobby because that label appears to produce less tax is not a substitute for answering the question.

The AirPost sender arrangement involves holding a shop’s stock, packing its orders and earning a service fee at a rate you set. That work gives you specific evidence to examine: your pricing, cost records, shop arrangements and changes when the work loses money. This US guide uses authorities checked October 14, 2026 and focuses on service income rather than resale of your own goods.

What distinguishes profit-seeking packing work from a pastime? #

The IRS hobby-or-business fact sheet asks about records, operating methods, expertise, time, profit history, losses and recreation. For packing work, a useful starting question is whether your fee is intended to cover the costs you bear and produce a surplus. A regular service arrangement with records and a reasoned rate supports that explanation more clearly than an unsupported statement that you intend to earn.

The controlling profit-motive regulation gives objective circumstances more weight than a taxpayer’s declaration. It also says a reasonable expectation of profit is not required, but the circumstances must show a profit objective. Do not turn that distinction into permission to ignore the numbers. Show what you expected, what happened and what you changed when the result differed.

Treat a business record as something you use, rather than a document created only for a tax question. If the commission or a required trip makes an arrangement uneconomic, your records should let you notice. A dated change in the rate or work you accept then has a reason. This produces evidence from ordinary decisions about the service, without inventing customers, shipment counts or results.

Which records fit the IRS factors for a home packing service? #

The regulation lists nine relevant factors, but says no single factor determines the result and that counting favorable factors against unfavorable ones is not the method. A tidy spreadsheet is useful but cannot cure an arrangement you conduct without a profit objective. Conversely, enjoying the work does not automatically override evidence that you run it to make money. Explain the whole pattern and retain records supporting it.

Some listed factors have less practical weight for a service sender than for other activities. Appreciation in the value of assets, for example, is not normally the reason you pack another shop’s goods. Those goods remain the shop’s stock, so their possible increase in value does not show a return you expect to earn. Focus your explanation on the service you actually sell and the financial choices you actually make.

Must you make a profit in three years before using Schedule C? #

No. Internal Revenue Code section 183(d) creates a presumption when gross income exceeds the relevant deductions in at least three of five consecutive taxable years ending with the year in question. The IRS can establish the contrary. That statutory presumption is helpful evidence; it is not a compulsory waiting period for every new business.

A new profit-seeking operation can be a business before that history exists, and an activity that does not meet the presumption is still evaluated on its facts. Do not infer “hobby” solely from an initial loss or infer “business” solely from a single profitable month. Keep annual records and explain why startup costs, changing demand or the way you priced the work produced the result.

The Schedule C instructions describe a business as an activity whose primary purpose is income or profit and in which you are involved with continuity and regularity. A genuinely isolated payment may require a different analysis from a continuing service, without automatically becoming a recreational hobby. If your situation is sporadic, explain what you did to your preparer instead of forcing it into one of two labels.

Keep the federal classification apart from whether you formed an LLC or chose a name. Neither an entity filing nor the absence of one supplies a complete profit-motive analysis. The records above concern your behavior. You may also have separate local obligations for carrying on work, but completing those formalities does not replace the federal income-category decision.

What happens to income and commission under the two treatments? #

Consider normalized gross service earnings of $100, without assuming any actual job volume or quoting a US fee. AirPost’s commission constant, read October 14, 2026, is 3%, giving a commission of $3.00 and $97.00 after it. Cash after commission is the same arithmetic whichever tax category correctly applies. The tax treatment of that commission is the separate question.

The IRS explains that hobby losses cannot offset other income and that ordinary hobby expenses fall within disallowed miscellaneous itemized deductions. Section 70110 of the 2025 law removed the former end date for that disallowance. Do not reuse older guidance claiming ordinary hobby operating expenses return as a general deduction in 2026.

Some costs have separate rules allowing deductions regardless of a profit objective; they are not a general permission to deduct ordinary packing-service expenses. This example involves service income, not a sale of personally owned goods with a cost basis. Keep those subjects separate. You do not acquire a cost-of-goods-sold deduction for the shop’s products merely by handling them.

A true hobby generally falls outside self-employment tax because that tax concerns a trade or business, subject to its statutory rules. That does not make the hobby label an elective way to avoid tax on an actual business. It also does not make the gross income tax-free. Evaluate the correct category first and calculate its consequences second; choosing the lowest result first reverses the process.

How should you report the activity when the facts are uncertain? #

The IRS taxable-income publication identifies Schedule 1 for income from an activity not engaged in for profit; the published form reference is line 8j. Use the correct form and instructions for the year you file. An operating business generally uses Schedule C, with self-employment tax considered separately. The payment document you receive does not, by itself, decide which of those categories applies.

1. 1

   Describe the activity without a tax label

   State which services you performed, how regularly, for whom and how your compensation was determined.

2. 2

   Prepare the financial record

   Separate gross fees, commission, other costs and payouts. Identify personal use and costs paid by the shop.

3. 3

   Explain your purpose through decisions

   Bring rate reviews, operational changes and records of why losses occurred. Use evidence created when you made the decisions.

4. 4

   Resolve the category before claiming expenses

   Review the facts with your preparer if the activity is sporadic, consistently loss-making or includes several different kinds of income.

Avoid combining unrelated activities simply because they use the same bank account. Packing for shops, selling your household possessions and pursuing a craft pastime can raise different questions. Give each stream a clear description. A payment platform’s aggregate document may need to be reconciled across those records before you enter income in the correct category.

You can begin with a modest service arrangement and still keep records proportionate to the work. Track the income and real costs, retain the shop agreement and review the margin. The fulfillment model explanation helps identify what belongs to the shop and what belongs to your service. That evidence is more useful than inventing a business story after the year has ended.