$1000 received for a painting that had a Cost of Goods Sold of $500. A really expensive frame. Hobby income is reported. Cost of Goods sold directly offsets the Hobby Income that gets reported. See Reg 1.183-1(e) which clarifies definition of income. Operating expenses are not deductible. If there were no tax documents, I would enter $500 as Hobby Income. If I had a 1099MISC to report for the $1000 received, I would enter the 1099MISC and enter a second 1099MISC for -$500 and title it COGS.
