Today Krishnan from the Internet is wondering. “I have a “Stamp Collecting Hobby” and spend about $2000 to $2500 each year. Are those expenses deductible under “Miscellaneous Expenses” when you itemize using Schedule A.”
A nice hobby – one that can someday make you rich.
As a hobby, you may only deduct your expenses up to the amount of income you generate.
No losses are permitted for hobbies.
And you would use Schedule C to report the income and expenses. Of course, the cost of the stamps will be inventory – so you won’t be deducting that cost.
You’ll find some information about how the hobby loss works in Ask TaxMama issue #158.
Now, since you can’t use the deductions, you SHOULD keep track of the expenses. When you sell the stamps, you’ll be able to prorate your costs among the stamps you bought that year (if you tracked the expenses). That would increase your costs and reduce your profit.
And yes, you must report the income from the sales of the stamps, when you do start selling them – even if it’s not a business. You’ll either report the sales on Schedule D, as capital gains – or on Schedule C, so it can absorb some of your expenses.
Naturally, you’ll find answers to all kinds tax questions – and lots of tax resources – free, where? Where else? At TaxMama.com !
- Ask TaxMama :: Where taxes are fun and answers are free
- Ask TaxMama #158 :: Hobby Loss Explanation
- Jan Zobel’s book :: Read page 150