How to report hobby income

"Other income" is now on Schedule 1. For 2018 it's line 21 of Schedule 1, and for 2019 it's line 8 of Schedule 1 (according to the current draft form). That's where you report hobby income. It does not require Schedule C or Schedule SE. This is as simple as it gets. You can't avoid using Schedule 1. The redesign of the forms has moved all but the most common entries to separate schedules.

Bob Sandler

report hobby income on your Form 1040 as ?Other income.? A hobby is an activity that has no expectation of a profit. You can only deduct hobby expenses up to the amount of hobby income you received. If you itemize, report the deductions on Schedule A.

For 2018, use Schedule 1, line 21.

Steve

I hadn't noticed that line in Schedule 1, just the line asking for business income from Schedule C. That does simplify things a lot. Thank you.

A followup question, just to put this to rest until tax time -

The Other Income line says "List type and amount." How much detail is required (there isn't a lot of room)? Is "hobby income" sufficient or do you have to describe the specific activity? Thank you.

"Hobby income" is sufficient.

Ira Smilovitz, EA

Related question: what if TP receives a 1099-MISC form for the hobby income? Less than $100, say.

Entering the 1099-MISC form makes TurboTox insist on filing either Schedule C or Schedule E. On the other hand, if TP instead enters the amount as "other income," might the IRS receive the 1099-MISC info and flag the return for unreported income?

Receipt of a 1099-MISC doesn't mandate filing any specific schedule, the full nature of the payment determines where it is reported. TurboTax is a consumer product and if you follow their "interview" method for input, you will be led down the most likely paths - Sch C or E.

As to the unreported income question - there is no way to bullet-proof any return from IRS scrutiny. If you get an IRS letter asking for explanation, it just takes a phone call or simple letter to resolve. If you really want to satisfy both TT and the IRS, you can enter it and create an offsetting "other" expense on the Schedule C: "Income properly reported as hobby income on Schedule 1, line xx".

Ira Smilovitz, EA

If you give TurboTax the right answers it will report the

1099-MISC as other income. "It didn't involve work like my main job." "I got it in 2018" only. Don't check the boxes for any other years. "It didn't involve an intent to earn money."

The IRS usually sees that the 1099-MISC was reported as other income. They are not going to bother you about it if the amount is under $400, because putting it on Schedule C instead would not make any difference in your tax. They only go after it if they think you should have paid self-employment tax, but there's no self-employment tax if the income is less than $400.

Bob Sandler

I've always treated a hobby that generates income just like any other business and filled out a Schedule C. On the Schedule C I list all the income (whether reported on 1099s or not) and all the expenses. If the expenses are greater than the income (common for a hobby), I enter a negative Other Expense called 'Non-deductible hobby expense' in the amount required to bring the 'Net Profit (or loss)' amount to precisely zero. This way all the income is declared so 1099 matching issues are minimized and the IRS is told the business is a hobby. This may very well be the wrong way to handle this but you end up with the correct final result and the IRS doesn't have any real incentive to investigate further. Just keep records for your hobby income and expenses in case they actually do have questions.

That is the wrong way to handle it. Hobby income (for purposes of Schedule 1) is gross income, not net income. That is, income before deductions (Schedule C, line 7). All other expenses must be deducted on Schedule A to the extent they are still allowable under current law.

You don't end up with the correct result because your method will generally yield a smaller taxable income than is correct.

See IRS Pub. 535, Business Expenses,

for guidance on how to report hobby income.

Ira Smilovitz, EA

I have read Pub 535, and it is silent as to where to report these income and expense items on the tax return. Lots of web sites say what you say, but what is the actual basis for not allowing hobby deductions, not in excess of hobby income, when the statute (section 183) clearly says they are deductible?

Go back and reread page 7 - the section on Not-For-Profit Activities. As to Section 183, you are correct, to a point. Section 183 defines what deductions are allowable, but not where on the income tax return they are reported. Deductions are reported on Schedule A with certain exceptions codified elsewhere (such as for Schedule C, E, F). As a not-for-profit activity, hobby deductions are reported where all other deductions are reported. It isn't any different than the treatment of investment expenses. If your trading activities rise to the level where you are in the business of trading, you deduct your expenses on Schedule C. Otherwise they are reported (or were reported) on Schedule A.

Ira Smilovitz, EA

I reread page 7. No help.

WHERE is it defined that deductions go on Schedule A, or C, E, F?

Where is it written that Section 183 allowed deductions are not allowed?

The IRS Pubs aren't authoritative. The Code and Regs are. These are further defined by Tax Court decisions. Most of this flows from the definitions of income in Sections 61 et seq..

Deductions are by legislative grace. Hobby income is not business income. Deductions allowable under Section 183 are the same in nature as those allowable under Sections 162 or 212 are still allowable under Section 183. The expenses defined in 183(b)1 are allowed in full regardless of overall profit or loss. The expenses in 183(b)2 are limited by remaining net profit. Those are the tax "bookkeeping" entries. However, them tax return entries are different. Income (as defined in Sections 61 et seq.) is reported in the income portion of the return. Personal expenses (since these are not business expenses by definition) are reported in the deductions portion of the return (Schedule A). TCJA limited the types of personal expenses that can be deducted between 2018-2025. So for now, you get no deduction for your ordinary expenses in your hobby.

As to whether deductions go on Schedule A, C, E, or F, the determination is linked to the type of income the expense is linked to: If it's a business - C, a rental or royalty property - E, a farm - F, anything else - A.

I'm not going to continue to debate this.

Ira Smilovitz, EA

I wasn't trying to debate you, just looking for information. And you repeatedly state conclusions, not the basic information I am seeking that leads to those conclusions. However, I realize you are not my personal hire, so that's fine too. Thanks.

Generally, there are no code or regulation sections that tell you where to report income and deductions. You can't even find a code or reg. section that says to report your personal income tax data on Form 1040, let alone place your wages on Line 7 of a 1040, or place other income on Line 21 of Schedule 1. That is because Congress in Subtitle F of Title

26 of the U.S. Code delegated that to the Secretary of the Treasury. The Treasury then publishes the forms we all need with a set of instructions that conform to the law to complete them. Over time, some taxpayers have taken issue with what the Secretary has instructed and the various courts have made a determination. As of today, not for profit activity income is considered too be ÖtherIncome" and reported as such on the proper line on Schedule 1 of the 1040. All of your allowed deductions go on Schedule A in the proper category as defined by various sections and regulations. Some of your deductions will not have a defined category and fall into the Misc. Itemized Deduction section of Schedule A. I.e., expenses incurred to obtain taxable income. These deductions subject to the 2% limitation are no longer deductible. Lastly, as previously stated, you can not report a loss on a not for profit activity.

Thanks to all for shedding some light on my follow-up question.