So here is my situation in a nutshell. My wife does theater productions as a hobby with no reasonable expectation to make a profit on the enterprise. She does, however, sell tickets with the intent to cover the expenses and generally only charges enough to break even.
So she had about $3k in ticket sales last year which didn't quite cover expenses. I'm not looking to deduct the entire loss. I just would prefer that since we didn't actually have any net income from the whole affair that I don't incur a tax liability.
So here is the problem.The deduction for hobby expenses (Misc income) is limited to 2% of AGI threshold. So only the expenses in excess of that limit can be deducted, which is way more than the $3k in expenses. So what that means is the entire $3k in revenue is treated as pure profit and taxable to the tune of roughly $900 on a hobby that LOST money in the year. I'm not trying to use the loss to offset other income, but it seems patently unfair that I have to pay $900 in taxes on a hobby that not only didn't generate income, it COST me money on aggregate.
Given that I don't expect to make money on this hobby any time in the future I don't think I can recharacterize it as a business to help myself out. Is there anything else I can do to avoid this $900 hit on my income taxes on phantom profits?