Legal Definitions - trade or business

Definition: Trade or business refers to any business or professional activity that a taxpayer engages in with the intention of earning a profit. If the taxpayer can demonstrate that their primary purpose is to make a profit, they may be able to deduct certain expenses as trade-or-business expenses under the Internal Revenue Code.

• A freelance graphic designer who creates logos and designs for clients is engaged in a trade or business.
• A small business owner who runs a bakery and sells baked goods to customers is engaged in a trade or business.
• A musician who performs at local venues and sells their music online is engaged in a trade or business.

These examples illustrate the definition of trade or business because each individual is engaging in an activity with the intention of earning a profit. They are conducting a business or professional activity that is not a hobby or personal pursuit, but rather a means of generating income. As a result, they may be able to deduct certain expenses related to their trade or business when filing their taxes.