TOrbison - As far as I know, exemption from federal income tax applies only to active duty military pesonnel while they are serving in combat zones. To find out more about your tax benefits, I would suggest that you contact your current military installation's Volunteer Income Tax Assistance Program (VITA). VITA's certified and IRS-trained volunteeres offer free tax help to servicemembers and their families, and have a specific understanding of militarty-specific tax concerns. You can read more about the VITA program for military personnel at IRS.gov. The IRS also provides guidance on distinguishing hobbies from business activities. According to the IRS, generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit. In order to make this determination, consider the following factors: Does the time and effort put into the activity indicate an intention to make a profit? Does the taxpayer depend on income from the activity? If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business? Has the taxpayer changed methods of operation to improve profitability? Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business? Has the taxpayer made a profit in similar activities in the past? Does the activity make a profit in some years? Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity? Remember that you must report all income that you earn in a filing year, whether you set up a business or not. If you decide to register a business to formalize your house-flipping venture, you can likely benefit from business tax deductions. You can learn more about the benefits of registering a business at SBA.gov.