What Is Hobby Income (Taxes)?

If you earn money from an activity the IRS considers a hobby — not a real business — that income is taxable, but you generally can't deduct losses against other income. The IRS uses a "profit motive" test: if you made a profit in at least 3 of the last 5 years, it's likely a business. Hobby income is reported as other income on your Form 1040. Turning a hobby into a legitimate business allows you to deduct expenses on Schedule C. Keep records to show you're operating like a real business.