The I.R.S. wants to know you are a business. That's it, plain and simple. One way to prove this is it to make a profit. But if you are generating enough revenue to overcome all your expenses, there are several other criteria used by the I.R.S. to establish that you are a business.
A couple of articles in the news recently focus on artist Crile in a legal battle with the I.R.S. -- Crile v. Commissioner. The New York Times article explains why a Tax Court Ruling Is Seen as a Victory for Artists. Read it first.
Then the Forbes article, Artists Rejoice! Tax Court Concludes Painter's Activity Isn't A 'Hobby' gives more technical information that you can apply to your business. It includes the nine factors to differentiate a business from a hobby. The author doesn't exactly sound sympathetic to artists/makers. Keep reading...
Pages 2-4 get far more interesting with definite "Takeaways" for everyone in the arts that they can apply to their creative business.
More articles about hobby vs. business issues and the I.R.S. below: