How to report hobby activity on a tax return

For 2018 and later years, on tax returns, hobby income is reported on Schedule 1 (Form 1040), line 21,
Other income. Hobby income is taxed at the taxpayer’s regular rate.

The 2017 Tax Cuts and Jobs Act suspends miscellaneous itemized deductions including hobby expense
deductions for tax years 2018 through 2025.

For tax years before 2018 and after 2025, taxpayers can deduct expenses, but there are some
restrictions:

• To deduct expenses related to a hobby, taxpayers must itemize.

• Taxpayers can only deduct hobby expenses, along with other miscellaneous expenses, that are
more than 2 percent of their adjusted gross income (AGI).
• Expenses are limited to the amount of income the hobby generates, so expenses can’t generate
a loss to reduce other income reported on the return.

How to report business activity on a tax return

Taxpayers usually report business income on Schedule C (Form 1040), Profit or Loss from Business and
attach it to their tax return. The profit or loss is then carried to Form 1040. Self-employed taxpayers can
also take deductions for retirement plan contributions and health insurance premiums on Form 1040.

To determine profit, taxpayers will report the gross receipts from the business and then reduce those
receipts by the expenses incurred in running the business. In general, the business can fully deduct these
expenses, with the exception of property or equipment, which must be depreciated over its useful life.

Business expenses are not limited to the amount of income the business earns, so a loss can reduce
other income reported on the taxpayer’s return.

Taxpayers who own a business also must pay self-employment taxes, at a rate of 15.3 percent. Self-
employed individuals must pay the employer and employee portions of self-employment tax and then
can deduct one half of the expense on the return.

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