Do you collect stamps in your spare time? Are you crazy about action figures or comic books? If you’re an avid hobbyist, know that you might be able to deduct some of the costs related to your hobby.
The Internal Revenue Service has released a few guidelines on what qualifies as a legitimate deduction. First of all, know that you are required to report income you earn from a hobby. Rules vary for how you report the income and expenses based on whether the activity is a hobby or a business.
The IRS has these tips about hobbies:
- Generally, you can deduct ordinary and necessary hobby expenses. The IRS describes an ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.
- Be aware that you can only deduct expenses related to a hobby up to the amount of hobby income. If your expenses exceed your hobby income, this is a loss from the activity. The IRS says hobbyists are not allowed to deduct the loss from other income.
- There are different rules for income reporting requirements depending on whether your hobby is a business or an activity you engage in just for fun.
- You are required to itemize deductions on your tax return in order to qualify for a deduction. Expenses generally fall into three types of deductions, and there are special rules for each type.
For more on this topic, see IRS Publication 535, Business Expenses.