How to Deduct Hobby Expenses From Federal Taxes

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Although hobbies are mainly for fun and pleasure, they can also turn into a nice source of extra income. The downside to this is that when tax time rolls around, Uncle Sam is going to want his share. The Internal Revenue Service requires you to report all hobby income on your tax return, no matter how small the amount. However, you may be able to avoid paying taxes on some or all of the income by claiming your hobby expenses as itemized deductions.

Claiming the Deduction

To deduct your hobby expenses, you must claim them on line 23 of Schedule A, in the section for miscellaneous deductions. Schedule A is the form used to claim mortgage interest, charitable donations and other itemized deductions. If you don't normally itemize your deductions, and instead take the standard deduction, you may not get any benefit by claiming your hobby expenses. If you do claim the expenses, you must reduce the amount of hobby expenses and other miscellaneous deductions by 2 percent of your adjusted gross income.

Deduction Limits

You can only claim hobby expenses up to the amount of your hobby income -- you can't claim a loss. The IRS figures you would have spent the money on your hobby anyways, and you weren't doing it to make money. If you ever turn you hobby into a business, you will be able to fully deduct all your expenses.