Can I Deduct Hobby Losses?

Spending money on a hobby you love is enjoyable, but the IRS has specific rules about when hobby costs can be deducted. The IRS distinguishes between a business, which is run with the intent to make a profit, and a hobby, which is primarily for personal enjoyment. If your activity is classified as a hobby, you must still report any income from it, but you cannot deduct hobby expenses to offset that income or create a loss under current law. The IRS uses a profit presumption rule that considers an activity a business if it shows a profit in three of the last five years. Photographers, artists, writers, and collectors often face this question, and keeping good records of your business intent and efforts to be profitable is important.