Like many of us, you've probably dreamed of turning a hobby or avocation into a regular business. You won't have any unusual tax headaches if your new business is profitable. However, if the new business consistently generates losses (deductions exceed income), the IRS may step in and say it's a hobby (an activity not engaged in for profit) rather than a business.
The classic "hobby loss" situation involves a successful businessperson or professional who starts something like a dog-breeding business, or a farm. But IRS's long arm also can reach out to more commonplace situations, such as businesspeople who start what appears to be a bona-fide sideline business.