Do you owe tax on hobby income?


Questions and Answers

Question: “I’ve been a long-time buyer and seller of trading cards. Online buyers pay me through Venmo. Now I’ve heard that my sales will be reported to the IRS and I’ll have to pay tax on the full amount. Can this be true?”

Answer: Sort of. Actually, you probably should have been paying tax on gains all along.  The latest wrinkle is that the American Rescue Plan Act imposes new reporting requirements on Venmo and other third-party providers. But there may be a way out of this tax mess if you’re willing to go the extra yard. Generally, you’re required to report income from sales relating to your hobby. The amount of the taxable gain on each sale is the difference between the sales price and your basis—not the full sales price. In the past, you could potentially deduct hobby expenses up to the amount of your hobby income, as a miscellaneous itemized deduction.  However, the Tax Cut and Jobs Act suspended miscellaneous expense deductions for 2018 through 2025. Currently, you get zero tax benefit from hobby expenses.  Third parties must start reporting certain transactions, including online sales, to the IRS. Under the ARPA, these reporting obligations apply to transactions totaling $600 or more, just like most other employer payments.  This change went into effect on January 1, 2022.  The new reporting requirements could cause tax complications if it isn’t clear whether a transaction is personal or for business. Furthermore, you may receive duplicate 1099s for the same goods or services from a buyer and a third party like Venmo.[/vc_column_text][us_image image=”3568″][/vc_column][/vc_row]