Hobby Income Tax Calculator
Estimate your tax liability for side income categorized as a hobby by the IRS.
Total Revenue:
$0.00
Federal Tax Owed:
$0.00
State Tax Owed:
$0.00
Total Estimated Tax:
$0.00
* Note: Under the Tax Cuts and Jobs Act (TCJA), hobby expenses are currently not deductible for federal income tax purposes.
How to Use the Hobby Income Tax Calculator
This calculator helps individuals estimate the tax burden on income derived from activities that do not qualify as a business. Under current IRS guidelines, hobby income is generally reported as "Other Income" on Schedule 1 of Form 1040.
The "Hobby vs. Business" Distinction
The IRS looks at several factors to determine if your activity is a hobby or a business. The primary distinction is the motive to make a profit. Key factors include:
- Whether you carry out the activity in a businesslike manner.
- Whether the time and effort you put into the activity indicate an intention to make a profit.
- Whether you depend on income from the activity for your livelihood.
- Whether your losses are due to circumstances beyond your control.
- Whether you change your methods of operation in an attempt to improve profitability.
Tax Rules for Hobby Income
Since the Tax Cuts and Jobs Act of 2017, the rules for hobbyists changed significantly:
- No Expense Deductions: You can no longer deduct hobby expenses from your hobby income on your federal return. This means you are taxed on the gross amount you earn, regardless of how much you spent on supplies or equipment.
- Not Subject to Self-Employment Tax: Unlike a business, hobby income is typically not subject to Social Security and Medicare taxes (Self-Employment tax), which can save you roughly 15.3% compared to business income.
- Reporting: All income must be reported, even if it's less than $600 and you didn't receive a 1099-K or 1099-NEC.
Example Calculation
Suppose you enjoy woodworking as a hobby. In 2023, you sold several birdhouses for a total of $3,000. You spent $1,000 on wood and tools. If your marginal federal tax bracket is 22% and your state tax is 5%:
- Gross Income: $3,000
- Federal Tax: $3,000 x 0.22 = $660
- State Tax: $3,000 x 0.05 = $150
- Total Tax Owed: $810
Even though you spent $1,000 on materials, you cannot subtract that from the $3,000 for tax purposes, resulting in a higher tax bill than a registered business would pay on the same profit.