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CandleFocus Glossary Editor
What is Hobby Loss?
A hobby loss refers to any monetary losses incurred from an activity that the Internal Revenue Service (IRS) has classified as a hobby. The activity must be recreational and for the pleasure of the individual rather than for the generation of income. The hobby must sufficiently demonstrate characteristics of a trade or business, but the main source of income from the activity cannot be from the activity itself.
Hobbies are found in a wide range of activities; from running a rock wall for fun to breeding and showing horses at a competition. Any activity done on a smaller or hobby scale versus a profitable business that generates income and shows an intent to make a profit are where hobby losses become an issue.
Types of Hobby Losses
Common hobby losses can include:
• Costs associated with entering an event, such as fees and registration costs • Prices paid for supplies • Expenses related to advertising or promotional materials • Travel expenses to attend shows or competitions
Regardless of the activity or the costs associated with it, all income received as a result of an activity must be reported to the IRS.
Reporting Hobby Losses
Prior to 2018, hobby losses were deducted in itemized deductions up to the gross income of the activity. However, the Tax Cuts and Jobs Act of 2018 has eliminated all miscellaneous itemized deductions for the 2018-2025 tax years. As a result, taxpayers can no longer deduct hobby losses from their annual income tax return.
Keeping a record of hobby expenses is still important for several reasons. This can help taxpayers accurately report income as well as be used to support a tax return if randomly chosen for an audit.
Conclusion
When engaging in an activity for entertainment, participating in a hobby can be an enjoyable pastime or a competitive event. While the cost of activities associated with the hobby are not deductible, taxpayers can still report all income related to the hobby to the IRS. It’s important to maintain records of all hobby-related expenses and other income received throughout the year to ensure accuracy of income tax returns.
A hobby loss refers to any monetary losses incurred from an activity that the Internal Revenue Service (IRS) has classified as a hobby. The activity must be recreational and for the pleasure of the individual rather than for the generation of income. The hobby must sufficiently demonstrate characteristics of a trade or business, but the main source of income from the activity cannot be from the activity itself.
Hobbies are found in a wide range of activities; from running a rock wall for fun to breeding and showing horses at a competition. Any activity done on a smaller or hobby scale versus a profitable business that generates income and shows an intent to make a profit are where hobby losses become an issue.
Types of Hobby Losses
Common hobby losses can include:
• Costs associated with entering an event, such as fees and registration costs • Prices paid for supplies • Expenses related to advertising or promotional materials • Travel expenses to attend shows or competitions
Regardless of the activity or the costs associated with it, all income received as a result of an activity must be reported to the IRS.
Reporting Hobby Losses
Prior to 2018, hobby losses were deducted in itemized deductions up to the gross income of the activity. However, the Tax Cuts and Jobs Act of 2018 has eliminated all miscellaneous itemized deductions for the 2018-2025 tax years. As a result, taxpayers can no longer deduct hobby losses from their annual income tax return.
Keeping a record of hobby expenses is still important for several reasons. This can help taxpayers accurately report income as well as be used to support a tax return if randomly chosen for an audit.
Conclusion
When engaging in an activity for entertainment, participating in a hobby can be an enjoyable pastime or a competitive event. While the cost of activities associated with the hobby are not deductible, taxpayers can still report all income related to the hobby to the IRS. It’s important to maintain records of all hobby-related expenses and other income received throughout the year to ensure accuracy of income tax returns.