Suppose a US hobby artist consistently has more expenses than income, so the activity does not qualify as a business. But suppose the hobby has income from selling paintings. How should the artist report this activity to the IRS, and can the hobby income be offset by the hobby expenses?
Assume hobby expenses each year are $2000, and hobby income each year is $1000. Also assume the artist has a regular-paying job that earns $50,000 per year.
You report hobby income as miscellaneous income on line 8z of Schedule 1.
TCJA has eliminated the hobby expenses deduction for the years 2017-2025. It was on Schedule A as a miscellaneous deduction subject to 2% AGI limit and to the extent of hobby income.
File it as a business with a loss using schedule C.
The whole notion of "intent to make a profit" seems a bizarre construct in the first place. As long as you are selling things you have a profit motive.
The IRS may eventually choose to disallow it but in my experience t these levels they really don't and it's been a nice tax deduction.
