You are correct that the IRS is expecting IRS form 1099-NEC income to be reported on IRS form Schedule C. See this TurboTax Help.
The method that you outline would:
- acknowledge the 1099-NEC as Schedule C income,
- would clearly point out that the income was ultimately reported as hobby income, and
- correctly report the income as hobby income.
An IRS agent reviewing such a return should appreciate the care and attention that was paid in reporting the income.
Since TurboTax Online requires a higher priced product to prepare an IRS form Schedule C, this method does not appeal to all TurboTax customers.
@Gavmister
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