How do I do taxes on a literal side gig playing in bands?

[gurtbfrobe]

I play in a few bands as a hobby, and historically I have not really ever made any money doing it, but in the last year or so things have picked up and it brings in a little money on the side, including one 1099-NEC form for some of the income. All combined maybe a few thousand dollars a year, so not much. Add to this the fact that I am always buying and selling musical gear that I use to play in these bands. While this is a hobby to me, the IRS reporting thresholds for money raised selling gear in online marketplaces has been coming down and this year I will probably end up getting a 1099-K for some of the sales of that gear.

So, I plan to report the income from those 1099 sources plus the cash income that I get from playing in bands on my taxes for this year, BUT I want to minimize the tax liability that I have on this income. I spend more in a year on buying gear and other gig-related expenses (money spent on gas and mileage driving to gigs, meals during gigs, etc.) than I bring in. Can I deduct all of those expenses to null out my tax liability on this income? What do I need to know about doing that? Will I need to show a profit every 3rd year or something like that? I want to do things properly, but also I don't want to pay taxes on my hobby.

[Alicia65]

The Internal Revenue Service typically allows you to take a tax deduction for losses incurred in the operation of your business. However, if your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby, which would prevent you from claiming a loss related to the business or even claiming any expenses for the hobby due to the suspension of miscellaneous itemized deductions for tax years 2018 through 2025. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

Claiming business or Hobby

If you are receiving a 1099-NEC and cash for these jobs, the question is are you in it to make a profit. If yes you can take expenses. 

The IRS safe harbor rule is typically that if you have turned a profit in at least three of five consecutive years, the IRS will presume that you are engaged in it for profit.

• If your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby.
• If 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.
• Beginning in 2018 and lasting through 2025, miscellaneous itemized deductions are no longer deductible and therefore no hobby expense is able to reduce hobby income.
• If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

[gurtbfrobe]

So I can just claim that I'm in it for profit and that will allow me to deduct costs? As long as I have some profit on 3 of 5 years I can use that business classification to deduct expenses? I play several times per month and get paid for it, so I don't think it is difficult to make the claim that it is for profit.

[Alicia65]

Yes.

It doesn't matter how may times you play. You can still have a small business if you played only once a month or several times.

You can take expenses. You will add them to a schedule C. You want to add your 1099-NEC and any cash you receive as income and any expenses you can account for.