Is hobby income taxable?

What counts as a hobby

Publication 525 defines a hobby in a single phrase: an activity from which you do not expect to make a profit. The examples it gives in the Other Income discussion are a hobby or a farm that you operate mostly for recreation and pleasure. The test the publication uses is your expectation, which is why a weekend woodworker who sells a few birdhouses at a craft fair and a collector who occasionally lists an item online may both fall into this bucket, while someone running the same activity as a real business with a profit motive belongs elsewhere, on Schedule C. This page follows the hobby side of that line only.

The income is taxable

The first rule is the one people sometimes miss: you must include on your return income from an activity even if you do not expect to make a profit from that activity. Not intending to profit does not turn the receipts into a tax-free gift. Craft sales, sold photographs, proceeds from selling homemade goods, or payments for a hobby farm’s produce all count. You enter the income on Schedule 1 (Form 1040), line 8j. Unlike business income reported on Schedule C, hobby income entered this way is not reduced by a business expense schedule on the same form, which leads to the second rule.

Expenses are capped, and only if you itemize

The publication says deductions for expenses related to the activity are limited. They cannot total more than the income you report from the activity, and they can be taken only if you itemize deductions on Schedule A (Form 1040). Two consequences follow. A hobby can never produce a deductible loss, because the expense deduction stops at the level of the income. And if you take the standard deduction, you get no deduction for hobby expenses at all, so the full amount of income is taxed with nothing subtracted.

The publication adds a related rule under Hobby losses: losses from a hobby are not deductible from other income. A person who collects stamps, coins or other items as a hobby for recreation and pleasure and sells some of them reports any gain as a capital gain, but if the items are sold at a loss, the loss cannot be deducted.

Worked example

A hobbyist potter sells $4,200 of work during the year and spent $5,000 on clay, a kiln repair and booth fees. The $4,200 goes on Schedule 1, line 8j. If the potter itemizes, the most that can be deducted on Schedule A for the activity is $4,200, because the cap equals the income; the other $800 is simply lost, and it cannot reduce wages or any other income. If the potter takes the standard deduction, nothing is deductible and all $4,200 is taxed. Run your own figures above: the result shows the income that is included, the deduction that is allowed given whether you itemize, and the part of your expenses that falls away.

Hobby or business, and what else to check

If your activity is run with the expectation of profit, it is a business, and its income and costs belong on Schedule C with the possibility of a loss and, when profits are high enough, self-employment tax; see the self-employment tax calculator and the $400 threshold checker. Publication 525 does not list a test for deciding which side of the line you are on, so confirm your facts with the Schedule C instructions or a tax professional. Online sellers should also look at Facebook Marketplace taxes and Form 1099-K. The publication does not discuss state tax treatment of hobby income, so check your state separately.

Sources

• IRS Publication 525, Taxable and Nontaxable Income (2025): the Activity not for profit entry under Other Income and the Hobby losses entry under Other Items. Read November 2, 2026.

Edition read: Publication 525 (2025), for use in preparing 2025 returns. Dollar limits and dates in this publication are for 2025; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it.