There's no specific IRS income limit for a hobby; instead, the key is whether the activity is a hobby (for fun) or a business (for profit). All hobby income must be reported as "other income" on Form 1040 Schedule 1, but you cannot deduct expenses (unlike a business), and you avoid self-employment tax. The IRS uses factors like business-like conduct, time/effort, and profit history to decide, with a presumption of profit if you make money in 3 of the last 5 years.
The federal self-employment tax is 15.3%, so you could save money if your income from an activity or pastime qualifies as hobby income. And if your activity generates less than $400 in 2025, you don't need to pay self-employment taxes, even if your income doesn't qualify as hobby income.
The IRS $600 rule refers to a change in reporting requirements for third-party payment apps (like Venmo, PayPal) for taxable income from goods and services, where platforms must send a Form 1099-K if you receive over $600 in a year, intended to capture gig economy/side hustle income, though delays and phased implementation have adjusted the timeline, with current rules for 2024 using a higher threshold ($5,000) before fully phasing to $600 for future years, but remember all taxable income, regardless of form, must always be reported.
The "3-year hobby rule," or IRS Hobby Loss Rule, is a tax guideline stating that if an activity makes a profit in three out of five consecutive years, the IRS presumes it's a legitimate business for tax purposes, not a hobby, allowing for business expense deductions; otherwise, it's presumed a hobby, and losses can't offset other income. The IRS examines factors like business-like operations, expertise, and time spent, but the profit test is a strong indicator, with exceptions for horse-related activities (2 of 7 years).
The itemized deduction for hobby expenses is completely eliminated under the Tax Cuts and Jobs Act. Hobbies are fun. They can also cost money. Sometimes, they can make money.
Generally, the IRS classifies your business as a hobby, it won't allow you to deduct any expenses or take any loss for it on your tax return. If you have a hobby loss expense that you could otherwise claim as a deductible personal expense, such as the home mortgage deduction, you can claim those expenses in full.
A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. People operate a business with the intention of making a profit.
The IRS "10k rule" primarily refers to the requirement for businesses and financial institutions to report cash transactions over $10,000 by filing Form 8300 (for businesses) or a Currency Transaction Report (CTR) (for banks), under the Bank Secrecy Act. This rule helps combat money laundering, tax evasion, and terrorist financing, requiring reporting for single transactions or related transactions totaling over $10,000 in cash within a year, with penalties for non-compliance.
Getting Form 1099-K from eBay
If your sales hit the payment threshold, eBay must prepare and send 1099-K copies to the IRS and to you by January 31 of the following year. IRS 1099-K payment reporting thresholds by year: $5,000 in 2024. $2,500 in 2025.
The IRS taxes hobby income as ordinary income at the individual tax rate, which you report on your tax return, typically on Schedule 1 (Form 1040) under “Other Income.” Unfortunately, hobby expenses aren't deductible and can not be used to reduce your tax liability.
You must file a tax return if you have net earnings from self-employment of $400 or more from gig work, even if it's a side job, part-time or temporary.
The "3 Hobbies Rule" is a life balance philosophy suggesting you cultivate three types of hobbies for a well-rounded life: one to make money, one to stay physically active, and one for creative or intellectual growth (like learning). This framework, popularized by figures like Naval Ravikant, aims to foster personal development by ensuring you nurture your financial, physical, and mental well-being through distinct activities, moving beyond just work and passive entertainment.
Any money you've earned from your hobby should be reported as “other income” on your tax return. If your hobby becomes profitable on a more regular basis, then you may need to reconsider whether it's actually a small business. You'll only need to pay self-employment tax if your net earnings are $400 or more.
Many attempt to keep their selling activity under the banner of a “hobby” because they don't want to file taxes. If you are a hobby or a business, you will still need to file taxes to declare your earnings.
The biggest tax mistakes people make include filing late, math errors, incorrect personal info (like Social Security numbers), forgetting deductions/credits (like EITC), misreporting income, not signing forms, and making errors with bank details for direct deposit, all leading to delays, penalties, or missed savings, with using tax software or professionals helping avoid these common pitfalls.
The "Hobby-Loss Rules" state that if an activity, either a business or investment, generates a profit in 3 out of 5 consecutive years the IRS will assume that you are engaged in the activity with the intent to make a profit.
Activities not considered hobbies are typically daily necessities, obligatory tasks (like work or chores), activities done purely for profit (business), passive consumption (like mindless scrolling), or habits that negatively impact life, while hobbies are pursued for enjoyment in leisure time, involving some personal engagement, skill-building, or creation, distinct from obligations or mere passive entertainment.
Hobby Income and Expenses
If the activity is a hobby, you will report the income on Schedule 1, line 8 of Form 1040. The income won't be subject to self-employment tax.