Taxpayers are required to report income from hobbies on their tax return.

There are 3 areas to consider if income is produced from a hobby:

1. First, decide if the activity is a hobby or a business based on the 9 factors below–all 9 factors should be considered –no one factor is decisive:

• Do you carry on the activity in a businesslike manner?
• Do you put the time and effort you into the activity to intend to make a profit?
• Do you depend on income from the activity for your livelihood?
• If you have losses, are your losses due to circumstances beyond your control (or are they normal in the startup phase of your type of business or hobby)?
• Have you changed your methods of operation in an attempt to improve profitability?
• Do you or your advisors have the knowledge needed to carry on the activity as a successful business?
• Were you successful in producing a profit in similar activities in the past?
• Does the current activity produce a profit?  How long has the activity produced a profit? How much profit does it produce?
• Can you expect to produce a future profit from the appreciation of the assets used in the activity?

If, based on these 9 factors, your activity is determined to be a hobby, hobby income should be reported on Line 21 of Form 1040.

2. You may be able to deduct ordinary and necessary expenses for your hobby:

• An ordinary expense is one that is common and expected for the activity.
• A necessary expense is one that is helpful or appropriate for the activity.

3.  There amount of deductions you can claim for your hobby are limited:

• Generally, you can only deduct expenses up to the amount of income produced from a hobby.
• If your hobby expenses are more than your hobby income, you can’t deduct your hobby loss from other income.

Expenses for your hobby should be itemized on Schedule A of your tax return.