Question

Scott, a single taxpayer, operates the activity of making peanut butter cookies as a hobby. Steve a different taxpayer, operates a similar activity as a bona find business. Scott's gross income from his activity is $3,500 and his expenses are $4,000. Steve's gross income and expenses happened to be the same as Scott's. Neither Scott nor Steve itemize, but both have other forms of taxable income. What is the impact on taxable income for Scott and Steve from these activities?

Answer 1

Prior to 2018, the income hobby activities are taxable and expenses are deductible provided they are miscellaneous itemised deductions upto maximum of income and when they exceed 2% of the taxpayerstotal income

But from 2018,the income from hobby activiites are taxable and hobby expenses are not deductible at all

So Scott, has to report a total income of $3500,and $0 deductions

When comes to the Steve has regular activity of business so he can claim the losses of 4000 against the income $ 3500

So he can report a loss of $ 500