IRS Tax Tip 2017-80: Five Things to Remember about Hobby Income and Expenses

Internal Revenue Service (IRS) sent this bulletin at 11/21/2017 02:24 PM EST

IRS Tax Tips

November 21, 2017

Issue Number: IRS Tax Tip 2017-80

Inside This Issue

Five Things to Remember about Hobby Income and Expenses

From scrapbooking to glass blowing, many Americans enjoy hobbies that are also a source of income. A taxpayer must report income on their tax return even if it is made from a hobby.

However, the rules for how to report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions taxpayers can claim for hobbies. Here are five things to consider:

Determine if the activity is a business or a hobby. If someone has a business, they operate the business to make a profit. In contrast, people engage in a hobby for sport or recreation, not to make a profit. Taxpayers should consider nine factors when determining whether their activity is a business or a hobby, and base their determination on all the facts and circumstances of their activity. For more about ‘not-for-profit’ rules, see Publication 535, Business Expenses.
Allowable hobby deductions. Taxpayers can usually deduct ordinary and necessary hobby expenses within certain limits:

Ordinary expense is common and accepted for the activity.
Necessary expense is appropriate for the activity.

Limits on hobby expenses. Taxpayers can generally only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than its income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.
How to deduct hobby expenses. Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type. See Publication 535 for the rules about how to claim them on Schedule A, Itemized Deductions.
Use IRS Free File. Hobby rules can be complex, and IRS Free File can make filing a tax return easier.

Additional IRS Resources:

Publication 525, Taxable and Nontaxable Income
Publication 529, Miscellaneous Deductions
Publication 334, Tax Guide for Small Business
Publication 17, Your Federal Income Tax

Share this tip on social media -- #IRSTaxTip: Five Things to Remember about Hobby Income and Expenses. https://go.usa.gov/xnKZr

Thank you for subscribing to IRS Tax Tips, an IRS e-mail service. For more information on federal taxes please visit IRS.gov.

This message was distributed automatically from the IRS Tax Tips mailing list. Please Do Not Reply To This Message.

Update your subscriptions, modify your password or email address, or stop subscriptions at any time on your Subscriber Preferences Page. You will need to use your email address to log in. If you have questions or problems with the subscription service, please contact subscriberhelp.govdelivery.com.

This service is provided to you at no charge by the Internal Revenue Service (IRS).

IRS Tax Tip 2017-80: Five Things to Remember about Hobby Income and Expenses

Useful Links:

News Essentials

The Newsroom Topics

IRS Resources

Issue Number: IRS Tax Tip 2017-80

Inside This Issue