As well, the Court cites a Court of Federal Claims decision that agrees with this position:. Furthermore, this holding is also consistent with the view of at least one other court. See Purdey v. United States, 39 Fed. The taxpayers did not agree with this view. As we have noted before, if the plain text of the statute unambiguously leads to a certain result, that result must control the treatment of the item, regardless of other items, including regulations or Congressional intent.
As the opinion notes:. The language they point to in support of their argument concerns only the maximum permissible amount of the deduction. It does not instruct taxpayers to apply the deduction itself against gross income for purposes of calculating AGI. Moreover, the plain language of section 62 a makes clear which deductions are to be applied against gross income in calculating AGI i.
To the extent the Gregorys make the ancillary argument that nothing in the plain language of section subjects the deductions permitted thereunder to the 2-percent floor on miscellaneous itemized deductions, we refer them to the plain language of section 67, which defines the scope of its applicability in subsection b. See discussion supra part II. A; see also In re Shek, F. The Gregorys also argue that under the rules of statutory construction, a general statute such as section 67 may not supersede a previously enacted specific statute such as section b , citing Eleventh Circuit precedent as set forth in United States v.
A taxpayer must report income on their tax return even if it is made from a hobby. However, the rules for how to report the income and expenses depend on whether the activity is a hobby or a business.
There are special rules and limits for deductions taxpayers can claim for hobbies. Here are five things to consider:. Notice: Historical Content This is an archival or historical document and may not reflect current law, policies or procedures. More In News. IRS Tax Tip , November 21, From scrapbooking to glass blowing, many Americans enjoy hobbies that are also a source of income.
Here are five things to consider: Determine if the activity is a business or a hobby. That change eliminates all deductions for hobby-related expenses, except for expenses that you can write off in any event, such as itemized deductions for allocable mortgage interest and property taxes. Though this issue has been an IRS hot button, the U.
Tax Court has ruled in favor of taxpayers in cases where the facts and circumstances supported a profit motive even though the activity in question was pleasurable. To make the determination between business and hobby activities, first consider the following two safe harbors that automatically qualify an activity as a for-profit business:. Basically, you must demonstrate an honest intent to make a profit.
Factors that can demonstrate such intent include the following:. The U. Tax Court also considers the history and magnitude of income and losses from an activity. In general, occasional large profits hold more weight than more frequent small profits. Likewise, losses caused by unusual events or bad luck are more justifiable than ongoing losses that only a hobbyist would be willing to accept. Another consideration is your financial status. If you earn a large income or most of your income from a full-time job or another business you own, an unprofitable sideline activity is more likely to be considered a hobby.
The degree of personal pleasure you derive from the activity is also a factor. For example, most people would say that photography is more fun than working in a high-stress executive position — so the IRS is far more likely to claim the former is a hobby if you start claiming recurring losses on your tax returns.
Business status is good for deducting losses. Hobby status is bad for federal income tax purposes, especially after the TCJA.
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