Hobby Income and Taxes

Hi, AlexaKS, you are correct, you are required to report all Hobby Income on your tax return.  But you don't really need to substantiate that you have a hobby as opposed to a business. Rather, the rules are the other way around - the IRS tends to look at if a hobby is incorrectly reported as business income, especially when there are losses reported over several years.

If a business or investment activity is not conducted as a for-profit business (i.e. is a hobby), then deductions are limited to the amount of income from the activity. If an activity is considered a for-profit business, deductions can exceed income, allowing the resulting loss to off-set other income.

Activities conducted as a hobby, or mainly for sport or recreation, come under this limit. An investment activity intended only to produce tax losses for the investor  also comes under this limit.

On the tax return ,your hobby income (defined as gross receipts less cost of goods sold) is reported as income.  And, under current tax law, no other expenses other than cost of goods sold can be deducted against the hobby income.  You would report hobby income on line 8j of Schedule 1.