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Per IRS Publication 17 Your Federal Income Tax For Individuals, page 92:

Activity not for profitYou must include on your return income from an activity from which you don’t expect to make a profit. An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. Enter this income on Schedule 1 (Form 1040), line 21. Deductions for expenses related to the activity are limited. They can’t total more than the income you report and can be taken only if you itemize deductions on Schedule A (Form 1040). See Not-for-Profit Activities in chapter 1 of Pub. 535 for information on whether an activity is considered carried on for a profit.

Additionally, the IRS website Hobby or Business? IRS Offers Tips to Decide outlines the following information:

Is it a Business or a Hobby?  A key feature of a business is that people do it to make a profit. People engage in a hobby for sport or recreation, not to make a profit. Consider nine factors when determining whether an activity is a hobby. Make sure to base the determination on all the facts and circumstances. For more about ‘not-for-profit’ rules, see Publication 535, Business Expenses.

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

If your activity is not carried on for profit, expenses incurred cannot be deducted for tax years 2018-2025, due to tax reform. You do need to report any income received from your hobby.

To enter the income from your hobby in TaxAct®:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then select Federal.
  2. Click Other Income in the Federal Quick Q&A Topics menu to expand the category and then click Prizes, awards, or other miscellaneous income
  3. Enter the amount in the field titled Hobby income

Once the entire itemized deductions section of the Q&A is completed, the program will use the higher of your itemized deductions or the standard deduction for your filing status to maximize the tax benefit to you.


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