From IRS website: http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer's trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.
In order to make this determination, taxpayers should consider the following factors:
*Does the time and effort put into the activity indicate an intention to make a profit?
*Does the taxpayer depend on income from the activity?
*If there are losses, are they due to circumstances beyond the taxpayer's control or did they occur in the start-up phase of the business?
*Has the taxpayer changed methods of operation to improve profitability?
*Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
*Has the taxpayer made a profit in similar activities in the past?
*Does the activity make a profit in some years?
*Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
All hobbyist should take note that if you intend to operate your business as a hobby and declare that your business is a hobby to IRS you are required to report your income on page 1 of your Form 1040, but you are only allowed to deduct your expenses on Schedule A, Form 1040. In effect you will only create taxable income because after you deduct all of the percentages for AGI and such on Schedule A your expenses are virtually wiped out.
----- Original Message -----
From: "Dr. Thomas Wiese" <[log in to unmask]>
To: <[log in to unmask]>
Sent: Thursday, November 14, 2013 6:05 AM
Subject: Re: [BEE-L] hobby income
On Nov 13, 2013, at 5:49 PM, Randall Austin <[log in to unmask]> wrote:
.
>>
>> Have you checked that with HMRC? I was not aware that they were willing to
>> subsidise any hobbies.
>
> The same applies in the US. You cannot deduct losses from hobbies (legally, anyway). An enterprise that loses money year after year and still keeps at it is obviously a hobby. If people are getting away with deducting hobby losses, it is because nobody has turned them in to the IRS yet.
>
> Randall Austin
Not only does the IRS not allow hobby deductions, if you are running a business, and do not make a profit for ?3? Consecutive years, they declare your business a hobby and disallow the deductions. I am fuzzy on the details as it has been a while since I heard from an incensed farmer.
Dr. Thomas Wiese
Hays, KS
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