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Old 06-21-2014, 09:53 AM
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Hobby Expense Question

I have a question regarding Hobby Income / Expenses:

Say I spent $3000 on painting supplies, $1000 of which went toward paintings I sold, and the other $2000 went toward paintings I gave as gifts to friends and family members. In the meantime, I made $1800 on the ones I sold.

(speaking before the 2% floor)
Can I only deduct the $1000 expenses that went towards the paintings I sold, or can I deduct $1800 of expenses to offset the full $1800 I made in profit?

Thanks,
DR



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Old 06-24-2014, 11:04 AM
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Join Date: Oct 2010
Posts: 5,227
Quote:
Originally Posted by rauch0812 View Post
Can I only deduct the $1000 expenses that went towards the paintings I sold, or can I deduct $1800 of expenses to offset the full $1800 I made in profit?

Thanks,
DR
Yes.Only against $1K since $2K went toward paintings you gave as gifts to your friends did not generate proftis(no income producing motive). Sat the IRS determines that this activity is a hobby. As a result, your $1K in expenses can be deducted only from income($1K) you earned fromyour hobby. As yu can see well, aslongas the IRS believes your income producing activity is a hobby, you won't be able to deduct all of your business expenses; Hobby expenses are not considered business expenses, however, even if you make some income from your hobby. Hobby expenses can't be reported on a Sch C. Instead, they must be reported as a miscellaneous expense on Sch 1040 Sch A of your personal tax return. They are subject to the same 2% floor as other miscellaneous expenses on Sch 1040 Sch A (they can only be deducted to the extent they exceed 2 percent of AGI). Furthermore, they cannot exceed your income from the hobby.



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