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Suppose a US hobby artist consistently has more expenses than income, so the activity does not qualify as a business. But suppose the hobby has income from selling paintings. How should the artist report this activity to the IRS, and can the hobby income be offset by the hobby expenses?

Assume hobby expenses each year are $2000, and hobby income each year is $1000. Also assume the artist has a regular-paying job that earns $50,000 per year.

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    Consistent losses does not mean it can't be a business, if you intend to make profit that can be sufficient. Similarly, you aren't prohibited from doing an activity for pleasure sometimes and also separately having a business involving that activity. People mostly get in trouble when they try to decrease tax liability by claiming business losses with no clear profit motive/effort. If this is something you do consistently, then you should discuss the legitimacy of classifying it as a business with a tax professional.
    – Hart CO
    Mar 3, 2023 at 19:54

2 Answers 2

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You report hobby income as miscellaneous income on line 8z of Schedule 1.

TCJA has eliminated the hobby expenses deduction for the years 2017-2025. It was on Schedule A as a miscellaneous deduction subject to 2% AGI limit and to the extent of hobby income.

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    Back when hobby expenses were deductible, I believe, that was capped at not more than hobby income. I don't know whether that was aggregated across all hobbies; I am guessing it was just because separating out overlapping interests would be a royal pain for everyone.
    – keshlam
    Mar 4, 2023 at 7:13
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File it as a business with a loss using schedule C.

The whole notion of "intent to make a profit" seems a bizarre construct in the first place. As long as you are selling things you have a profit motive.

The IRS may eventually choose to disallow it but in my experience t these levels they really don't and it's been a nice tax deduction.

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    Whether it makes sense probably depends on whether the total income tax plus self-employment taxes from the net income would be higher than the income-tax-only taxes on the gross. If so, then if it's allowed to call hobby income "miscellaneous income", that would be preferable to avoid incurring self-employment tax. If the amount becomes significant though the IRS will probably insist that you call it business income (in which case of course you're entitled to deduct expenses). Mar 4, 2023 at 14:52
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    Just because you don't understand the logic behind a rule, doesn't mean it's valid to post an answer based on ignoring that rule. Suppose someone spends $200 to go fishing for 5 hours, during which they catch some fish that they sell for $20. Does the $200 magically become tax deductible just because it was connected to revenue? Of course not. Mar 5, 2023 at 1:36
  • @Acccumulation: if you enjoy paying more taxes than you have to, go right ahead. Of course you can try to declare it a business, file a schedule C and deduct the loss from your other income. Worst that can happen is that the IRS disallows it. Most tax laws have no logic whatsoever and even if they do, it's irrelevant. What matters is the detailed text of the law and it's legal interpretation.
    – Hilmar
    Mar 5, 2023 at 4:38
  • @Hilmar business deductions require intention and ability to make a profit. The example given to you shows neither. When the IRS disallows something it's not just "oh well, you have to pay a bit more" - it's a significant cost of audit representation, additional tax, penalty, and potentially fighting off claims of fraud (which if you can't fight off successfully will lead to 75% tax on the disallowed amount). And it's not very hard for the IRS to spot these activities, within the statute period you'll have three years of losses on Schedule C with no reasonable revenue, let alone profits.
    – littleadv
    Mar 5, 2023 at 10:15
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    "if you enjoy paying more taxes than you have to, go right ahead." You are legally prohibited from claiming losses from hobbies. If you enjoy committing federal felonies to save a few hundred bucks, then I can't stop you, but you shouldn't be posting this as an answer. "Worst that can happen is that the IRS disallows it." No, the worst that happens is you get fined and get sent to federal prison. Mar 5, 2023 at 18:17

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