Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000. During 2019 she sold the bedspreads for $10,000.She incurred expenses as follows: $$\begin{array} { l r }
\text { Supplies } & \$ 4,000 \
\text { Interest on loan to get business started } & 500 \
\text { Advertising } & 6,500
\end{array}$$ 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 2019 she sold the bedspreads for $10,000.She incurred expenses as follows: $$\begin{array} { l r } 
\text { Supplies } & \$ 4,000 \
\text { Interest on loan to get business started } & 500 \
\text { Advertising } & 6,500
\end{array}$$ 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, she can only report the $10,000 in income on her tax return and cannot deduct any of the expenses, as hobby losses are not allowed to be deducted from AGI. Therefore, she should include the $10,000 in income and deduct nothing from her AGI.

Priscella Pursued a Hobby of Making Bedspreads in Her Spare