J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Business Expenses

Any type of expense you could deduct for a full-time business applies to a sideline activity as well. The only question is whether the hobby loss rule limits your annual write-off.

Home Office Deduction

If you run a sideline activity from your home, you can claim a home office deduction as long as you meet the home office rules (see Chapter 18). The office need not be used for a full-time activity. As long as it is your principal place of business for a sideline activity, you can deduct related expenses.

Other Business Expenses

From start-up to shut-down and in between, expenses incurred in a sideline activity are viewed as deductible costs just as if it were a full-time business. There are no deductions barred to you merely because you do not work full-time at this activity.

Where to Report Hobby Income and Expenses

Unless the activity is a business, hobby income is reported as “Other Income” on Form 1040. There is no additional form or schedule to complete, although you can attach your own statement explaining the income.

Deductions from a hobby activity are reported as miscellaneous itemized deductions on Schedule A subject to the 2%-of-AGI rule.