Millions of people enjoy hobbies. They can also be a source of
income. Some of these types of hobbies include stamp or coin collecting,
craft making and horse breeding. You must report any income you get
from a hobby on your tax return. How you report the income is different
than how you report income from a business. There are special rules and
limits for deductions you can claim for a hobby. Here are four basic tax
tips you should know if you get income from your hobby:
- Business versus Hobby. A key feature of a business
is that you do the activity to make a profit. This differs from a hobby
that you may do for sport or recreation. There are nine factors
to consider when you determine if you do the activity to make a profit.
Make sure you base your decision on all the facts and circumstances of
your situation. Refer to Publication 535, Business Expenses to learn more. You can also visit IRS.gov and type “not-for-profit” in the search box.
- Allowable Hobby Deductions. You may be able to
deduct ordinary and necessary hobby expenses. An ordinary expense is one
that is common and accepted for the activity. A necessary expense is
one that is helpful or appropriate. See Publication 535 for more on these rules.
- Limits on Expenses. As a general rule, you can
only deduct your hobby expenses up to the amount of your hobby income.
If your expenses are more than your income, you have a loss from the
activity. You can’t deduct that loss from your other income.
- How to Deduct Expenses. You must itemize
deductions on your tax return in order to deduct hobby expenses. Your
costs may fall into three types of expenses. Special rules apply to each
type. See Publication 535 for how you should report them on Schedule A, Itemized Deductions.
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