The Internal Revenue Service has released a few guidelines on what qualifies as a legitimate deduction. First of all, know that you are required to report income you earn from a hobby. Rules vary for how you report the income and expenses based on whether the activity is a hobby or a business.
The IRS has these tips about hobbies:
- Generally, you can deduct ordinary and necessary hobby expenses. The IRS describes an ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.
- Be aware that you can only deduct expenses related to a hobby up to the amount of hobby income. If your expenses exceed your hobby income, this is a loss from the activity. The IRS says hobbyists are not allowed to deduct the loss from other income.
- There are different rules for income reporting requirements depending on whether your hobby is a business or an activity you engage in just for fun.
- You are required to itemize deductions on your tax return in order to qualify for a deduction. Expenses generally fall into three types of deductions, and there are special rules for each type.
For more on this topic, see IRS Publication 535, Business Expenses.