Hobby Income and Taxes

Hobby Income and Taxes

Hobby income is money earned from an activity that’s not a for-profit activity. Let’s say your hobby is collecting stamps, and you have a full-time job or business in a completely different line of work, but you occasionally sell your stamps on a platform like eBay ($EBAY). This is considered hobby income, and unfortunately, the IRS expects you to pay taxes on it.

Here are the answers to common questions about hobby income and taxes.

What’s the Difference Between Hobby Income and Business Income?

Hobby income is received from an activity that isn’t for profit, while business income comes exclusively from profit-driven activities. However, both types of income are taxable by the IRS.

Do You Pay Taxes for Hobby Income?

The IRS requires you to pay taxes on all income earned, even if it’s from a hobby and even if it’s only a few dollars. But you might be able to deduct some of the expenses you incurred while earning hobby income, just like you can with a business.

Is Hobby Income Subject to Self-Employment Tax?

Individuals who are self-employed are subject to a self-employment tax of 15.3 percent, which goes to fund Social Security and Medicare. If you are an employee who receives a W-2, you only pay half of these taxes — known as payroll taxes — and your employer pays the other half.

Any income you earn on your own that qualifies as business income is usually subject to self-employment tax. However, if your income qualifies as hobby income rather than as business income, you do not have to pay self-employment tax on it.

Can You Deduct Hobby Expenses from Your Hobby Income?

You can sometimes deduct expenses associated with your hobby from hobby income you earn as a result of it, though recent tax reforms have muddied these rules. Let’s say, for example, your hobby is collecting clocks. If you sell some of your clocks on eBay and earn income throughout the year, you can often deduct the cost of the raw materials used to make those clocks and possibly the tools you used for assembly (unless they were basic household tools not specifically used for that purpose).

One expense you cannot deduct from hobby income is a home office expense, as this cost is specifically associated with running a for-profit business.

Will You Receive a 1099-K if You Earned Hobby Income Online from Sites Like Etsy and eBay?

If you earned more than $600 in hobby income online from a single platform such as Etsy or eBay (or even a service like Uber or Lyft — some people drive as a hobby), you will likely receive a 1099-K form, which means that the IRS will receive a copy, too. You must report your hobby income when you do your taxes for that year.

How Do You Report Hobby Income on Your 1040 Tax Return?

You report “other income,” including hobby income, on Schedule 1, Line 8 of your 1040 tax return.

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