Any income received for services or goods is taxable. You have to decide if it's a hobby or a business for tax purposes. Review this page from IRS:
Key elements:
- A hobby requires you to report the income you received and under the current tax law, Tax Cuts and Jobs Act (TCJA), no expenses are allowed to be used to reduce the money collected even if you itemize deductions.
- A business allows you to deduct the costs necessary to obtain the income. The law explains that 'you must be engaged in the activity to produce a profit'. The test under IRS is that you must show a profit three out of every five consecutive year.
The amount of tax depends on the decision.
- Hobby income will be taxed at your tax rate once all income on the tax return is combined and reduced by deductions and filing status.
- Business net profits are the same with an added self-employment tax which is the equivalent of social security and medicare taxes paid as an employee. A self employed individual pays both the employer and employee portions towards their own social security account.
[Edited: 02/11/2021 | 5:11 PST]
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