What is Hobby Income?

Engaging in hobbies can be a fulfilling and enjoyable way to spend time. However, if these hobbies generate income, it’s crucial to understand the tax implications. The Internal Revenue Service (IRS) classifies income from hobbies as “hobby income,” which is subject to taxation. This article will delve into the definition of hobby income, its tax treatment, and the distinction between hobbies and businesses in the eyes of the IRS.

Definition of Hobby Income

Hobby income is income derived from an activity that is pursued primarily for enjoyment or recreation, without the intention of making a profit. The IRS defines a hobby as an activity that:

  • Is not carried out in a businesslike manner
  • Does not generate a profit or is not expected to generate a profit
  • Is pursued primarily for personal pleasure or recreation

Examples of hobby income include:

  • Selling handmade crafts on Etsy
  • Taking photographs and selling them online
  • Designing logos or websites for friends and family
  • Flipping furniture or other items for a small profit

Tax Treatment of Hobby Income

Hobby income is considered taxable income by the IRS. It must be reported on your tax return, even if you do not make a profit from the activity. The income is reported on Schedule 1, Additional Income and Adjustments to Income, which is attached to your Form 1040.

However, unlike business expenses, hobby expenses are not deductible on your tax return. Prior to the Tax Cuts and Jobs Act (TCJA) of 2017, hobby expenses could be deducted as miscellaneous itemized deductions on Schedule A, Itemized Deductions. However, the TCJA eliminated miscellaneous itemized deductions, so hobby expenses are no longer deductible.

Distinction Between Hobbies and Businesses

The IRS uses nine factors to determine whether an activity is a hobby or a business:

  1. Do you act in a businesslike manner and maintain accurate books and records?
  2. Do you put time and effort into the activity to make it profitable?
  3. If you lose money on the activity, is

Is it a hobby, or a business?


How does the IRS define hobby income?

IRS Tax Tip 2022-57, April 13, 2022. A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. People operate a business with the intention of making a profit. Many people engage in hobby activities that turn into a source of income.

What is an example of hobby income?

Many people enjoy hobbies that are also a source of income. From painting and pottery to scrapbooking and soapmaking, these activities can be sources of both fun and finances.

How much money can you make as a hobby before paying taxes?

If you earn more than $400 in a calendar year from your hobby, you should file a return and report it as self-employed income on your taxes. According to the IRS rules, you must file Schedule SE and pay self-employment tax if your net earnings from your activity are $400 or more in a single calendar year.

How do I prove my hobby income?

If you determine you have hobby income, you will report the income on Line 8 (Other income) on Schedule 1 of Form 1040. You will report your income and expenses on Schedule C of Form 1040 if you have business income and are a sole proprietor (i.e., the only owner of an unincorporated business).

What is the difference between Hobby income and business income?

For tax purposes, the main difference between hobby income and business income is what deductions you can take. If you earn business income, you may qualify for tax deductions on qualified expenses. However, expenses for hobby income do not qualify for tax deductions. Let’s look at the tax implications for both sources of income.

Do hobbyists pay taxes?

Hobby revenue is subject to income tax, but you won’t have to pay any self-employment tax as a hobbyist. You can report hobby income on Form 1040 (Schedule 1, line 8) under a section called “Other Income.” If you earn hobby income from a side hustle, the IRS no longer allows you to deduct hobby-related expenses to offset your other income.

Are hobbies a source of income?

Many people enjoy hobbies that are also a source of income. From painting and pottery to scrapbooking and soapmaking, these activities can be sources of both fun and finances. Taxpayers who make money from a hobby must report that income on their tax return. If someone has a business, they operate the business to make a profit.

Is a hobby a business?

This would be hobby income. Generally speaking, your hobby is a business if: Some or all of your income comes from the hobby. For example, you sell handmade candy on an e-commerce store, and the earnings account for half of your annual income. Your hobby experiences profits and losses.

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