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Five Basic Tax Tips about Hobbies

8/11/2014

 
Millions of people enjoy hobbies that are also a source of income.  Some examples include stamp and coin collecting, craft making, and horsemanship.

You must report on your tax return the income you earn from a hobby.  The rules for how you report the income and expenses depend on whether the activity is a hobby or a business.  There are special rules and limits for deductions you can claim for a hobby.  Here are five tax tips you should know about hobbies:

1.  Is it a Business or a Hobby?   A key feature of a business is that you do it to make a profit.  You often engage in a hobby for sport or recreation, not to make a profit.  You should consider nine factors when you determine whether your activity is a hobby.  Make sure to base your determination on all the facts and circumstances of your situation.  For more about ‘not-for-profit’ rules see Publication 535, Business Expenses.

2.  Allowable Hobby Deductions.  Within certain limits, you can usually 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 appropriate for the activity.

3.  Limits on Hobby Expenses.  Generally, you can only deduct your hobby expenses up to the amount of hobby income.  If your hobby expenses are more than your hobby income, you have a loss from the activity.  You can’t deduct the loss from your other income.

4.  How to Deduct Hobby Expenses.  You must itemize deductions on your tax return in order to deduct hobby expenses. Your expenses may fall into three types of deductions, and special rules apply to each type.  See of Publication 535 for the rules about how you claim them on Schedule A, Itemized Deductions.

For more on these rules see Publication 535.  You can get it on IRS.gov.

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  • Home
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    • Book An Appointment
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    • Dashboard
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    • Tax Stuff >
      • Individuals >
        • Income >
          • Debt Forgiveness
          • Foreign Income
          • Gambling Income
          • Unemployment
          • Other Income
        • Deductions & Credits >
          • Adoption
          • Charitable Contributions
          • Earned Income Tax Credit
          • Educational Expenses
          • Energy Tax Credits
          • Employee Business Expenses
          • Other Deductions and Credits
        • Affordable Care Act - Individuals
        • Children and Dependents
        • Death
        • Disabled Taxpayers
        • Educators
        • Health Care
        • Identify Theft
        • Marriage and Divorce
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        • Other Topics
      • Businesses >
        • Affordable Care Act - Businesses
        • Year-end Reporting Obligations >
          • 1099's
          • Health Insurance Premiums
          • Depreciation
          • Reimbursed Employee Business Expenses
          • Company Automobiles
        • Employment Tax Credits
        • Independent Contractors
        • Tax Credits and Deductions for Businesses
        • Other Business Topics
        • Required Business Posters
      • Amended Returns
      • IRS Notices and Problems
      • Tax Plan >
        • All About the Earned Income Tax Credit
        • 5 IRS Audit Red Flags
        • Retirement Plans for Sole Proprietors
        • Are You Claiming All of Your Tax-Deductable Business Expenses for 2015?
        • All About Past Due Tax Returns
        • Do You Need to File Form 1099s?
        • How to File an Appeal with the IRS
        • Why You Might Get a Letter from the IRS, and What to Do
        • How to File an Amended Tax Return
        • Should You Claim the Home Office Deduction?
        • How to Avoid -- And Deal with -- Identify Theft
        • Q & A: IRS Audits
        • Are You Using the Right Business Structure?
        • Starting Planning for 2015 Income Taxes Now: 5 Tips
        • What You Need to Know About Estimated Taxes
        • Contractor or Employee? How the Income Tax Obligations Differ
        • The New Form 1095-A: Reporting Health Insurance Coverage
        • Are Your Social Security Payments Taxable?
        • Do You Qualify for the Earned Income Tax Credit?
        • Are You Eligible for Health Insurance Tax Credits
        • Employee Retirement Plans - Tax Advantages and Other Benefits
        • 5 Business Tax Credits You May Be Missing
        • New Business in 2012
        • Is it a Bad Debt or a Simple Revenue Loss? Telling the Difference
        • Business Taxes Add Complexity: How Will This Affect You?
      • Tax Scams