You can deduct hobby expenses up to the amount of your hobby income. Expenses that are more than the income you made from your hobby are nondeductible personal losses.
If you operate a business, your business losses can offset other income on your return. To be considered a business, an activity must have a profit motive.
The IRS presumes you carry on an activity for profit if 1 of these applies:
It makes a profit in at least 3 of the last 5 years.
It makes a profit in at least 2 of the last 7 years, and your activity is mainly 1 of these:
Hobby Income vs. Business Income
The IRS considers many factors when deciding if your activity is a business or a hobby. No one item is the deciding factor, and the IRS might consider factors not listed. Deciding factors include:
Manner you carry on the activity
Your and your advisor's expertise
Time and effort you put into carrying out the activity
Your expectation that assets used in the activity might appreciate in value
Your success in carrying on similar or dissimilar activities
Your history of income or losses with respect to the activity
Account of occasional profits, if any, that are earned
Your financial status
Elements of personal pleasure or recreation the activity has for you
Deduct hobby expenses as itemized deductions on Schedule A as part of your miscellaneous itemized deductions. You can only deduct your total miscellaneous itemized deductions if they’re more than 2% of your adjusted gross income (AGI).