mishmallow8 asked:
Hello,
Hello,
I am hoping to make money from my hobby but taxes pretty much takes almost half of my yearly hobby income…it’s not registered as a business yet…I am going to pay for taxes on it this 2008…
Can I still claim expenses? 
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If you are doing your activity as a hobby, report the hobby income (before expenses) on Line 21 of Form 1040. You may deduct your hobby expenses on Schedule A as miscellaneous deductions subject to a 2% of AGI floor. Your deductions for expenses cannot exceed your hobby income.
If you are doing your activity as a business, that is, for profit, then you report your income and expenses on Schedule C. The net profit is then reported as income on Form 1040. In addition to income taxes on the net income, you will pay self-employment taxes of approximately 15%.
Registering as a business is only required if your local laws require it. Not being registered as a business doesn’t stop you from claiming the expenses on your tax return on your schedule C or C-EZ, so yes you can claim them. But as far as the IRS is concerned, it’s a business whether you are registered or not, given the net income you have that you mention in your earlier question. The IRS definition of a hobby is basically something that you don’t do for profit, expecting to make income from it – otherwise they consider it a business.
You’re fortunate to have the talent to do something you enjoy and still make that much money from it.
ninasgramma is usually right on with her answers, so I can only guess that when she talks about hobby, she didn’t see your previous question saying your hobby makes you around $24-30K per year, with expenses around 1/3 of that – that kind of income takes it out of the hobby category.
And just a note: if you’ve made money from this in previous years, that was taxable income too, and should have been claimed or you should file amended returns and pay the tax to be really legal about it all.
You can fill out a Schedule C (profit or loss from business). It does not a require a EIN (employer id number). You can most certainly use it for a small home based business or a hobby based business shall we say. Your doing the right thing by claiming it. Why would the government not allow you to claim your expenses after all you can hide that income easily. It’s only fair to both of you. IRS isn’t evil unless you lie and hide from them they are pretty fair with things.
I agree with nina’s answer. The key factor is not profit or loss, but intention to make a profit (or lack of such intention).
To be technical, the IRS long-ago did away with the term hobby income. Everyone still uses that phrase (including me) but the actual term is an activity not entered into for profit. As you can see, its easier to say hobby.
Many people (including myself) make a profit from a hobby. Since I don’t do my hobby with the intention of making a profit, I use the procedure listed by nina (ie: gross on line 21, expenses not to exceed income as a 2% miscellaneous itemized deduction). Since my activity was not entered into for profit, if I had a loss I would not be able to deduct the loss.
Conversely, if I did try to make a profit I would have a business. In that case the income and expenses would be reported on Schedule C. Any profit would also be subject to self-employment tax, and losses would be deductible against other income.