Millions of people enjoy hobbies that are also a source of income. Some examples include stamp and coin collecting, craft making, and photography.
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 some tax tips you should know about hobbies:
Many taxpayers have a ‘side business’ in addition to their main source of income from a job or self-employment. In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. However, Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”