Hobby income is reported in Line 21 Other Income of Form 1040, while hobby expenses are reported in Sch A under Job Expenses and Certain Misc Deduction subject to 2% of AGI limitation.
Hobby or Business? The taxpayer must consider the following 9 issues:
- Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
- Whether the time and effort you put into the activity indicate you intend to make it profitable.
- Whether you depend on income from the activity for your livelihood.
- Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
- Whether you change your methods of operation in an attempt to improve profitability.
- Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
- Whether you were successful in making a profit in similar activities in the past.
- Whether the activity makes a profit in some years and how much profit it makes.
- Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year
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