Taxpayers can generally deduct ordinary and necessary expenses for conducting a trade or business or for the production of income.

But taxpayers who operate a hobby hoping to earn some income from it are faced with daunting rules regarding the taxation of the activity: If the activity is not engaged in for profit, it doesn’t qualify as a trade or business, and therefore any income received is reportable as “other income” on Form 1040, while losses are considered nondeductible personal expenses. Expenses are deductible, but only to the extent that the activity generates income, and the deduction is limited by the 2 percent adjusted gross income floor for miscellaneous itemized deductions.

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