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Posted By: Erin Forst

June 17, 2020

Hobby income is income, too. And just like any other income, the IRS wants its cut.

Your first dollar of income from your hobby should go on the other income line of your income tax return. There is no minimum amount of hobby income to be taxed on it. However, you may not have to pay tax if your total income isn’t high enough for you to owe taxes .

The usual tax filing thresholds apply to hobby income. If your total income, including hobby income, is above the threshold, you need to file a return.

The threshold is usually equal to the standard deduction. In 2019, that’s $12,200 for 4 ways to become a freelance designer single filers and $24,400 for joint filers. Note that there may be other reasons you need to file a tax return if your income was below those amounts.

Hobby income is ordinary income subject to your normal income tax rate based on your tax bracket . That’s 10%, 12%, 22%, 24%, 32%, 35%, or 37%.

Hobby income is not earned income. Social Security and Medicare taxes only apply to earned income.

Under the Tax Cuts and Jobs Act, there are no deductions for hobby expenses. You must include all hobby income in your taxable income even if your hobby expenses were greater than your hobby income.

For tax years through 2017, you could include hobby expenses as a miscellaneous itemized deduction subject to a floor of 2% of your adjusted gross income.

Hobby income is not earned income. Retirement accounts only allow contributions from earned income.

If you do have earned income, there is nothing stopping you from putting the extra money into a retirement account, but your contribution limits would be based solely on your earned income.

Hobby income does count towards the AGI limit for a Roth or traditional IRA .

The general test for whether you’re a business or a hobby is called the hobby loss rule . If your income exceeds your expenses in three out of five years, it’s presumed you’re a business. If your expenses exceed your income in three out of five years, you’re presumed to be a hobby.

The hobby loss rule is only a default rule. The ultimate determining factor is why you’re doing what you’re doing. If you make a $500 profit every year, but spend all day every Saturday doing it, that’s more of a hobby. On the other hand, if you make $500,000 in profit every year, you’re going to have a very hard time convincing the IRS you’re not a business no matter how much fun you had.

There is no such thing as hobby selling under the tax code. Hobby selling usually refers to buying and selling things as part of a hobby. It would follow the above rules.

If all you’re doing is buying and selling while making a steady income, you’re probably a business. If you have collectibles that you display and enjoy but occasionally sell some to make space or raise money to buy more, it’s likely a hobby.

It could actually be better to be a business instead of a hobby even if you’re getting taxed on your profits. First, you’re getting your deductions back, so you may pay less in taxes. Second, your income will count towards your Social Security earnings record and increase your benefits in retirement. Finally, you may be eligible 55 cheap crafts to make money from your phone – https://svjsckdd.space/paid/, contribute additional money into a self-employed retirement account .

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