Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year she sold the bedspreads for $10,000.She incurred expenses as follows: Assuming that the activity is deemed a hobby,how should she report these items on her tax return?

Question

Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year she sold the bedspreads for $10,000.She incurred expenses as follows:  Assuming that the activity is deemed a hobby,how should she report these items on her tax return?

Quizplus · Accepted Answer

Since the activity is deemed a hobby, Priscella cannot deduct expenses in excess of the income received from selling the bedspreads. She should include the $10,000 in income on her tax return and can claim $10,000 of the expenses as itemized deductions on Schedule A. She cannot deduct the remaining $1,000 of expenses. Priscella should not deduct the expenses for AGI since hobby expenses are only deductible as itemized deductions. Option A is incorrect because she cannot deduct more expenses than the income earned. Option B is incorrect because she can deduct expenses up to the amount of income earned. Option D is incorrect because there is no mention of interest expense in the question.

Priscella Pursued a Hobby of Making Bedspreads in Her Spare