You are not allowed to claim or deduct expenses for hobby income. If this is a hobby, then every penny you received from the cosigner is reportable, taxable income. Whereas if you are declaring that you do this as a business, (even if a side business) then as far as the IRS is concerned you made that money while self-employed and "in business" for yourself. So it would be reported as such on SCH C as a part of your personal 1040 tax return. Business expenses would be allowed then.
Just understand that you have to prove those expenses if audited. So if you sold that old baby car seat that's been sitting in the attic for 5 years, for $50 and are claiming you paid $100 for it (for a $50 loss) then if audited you'll have to prove it. Otherwise, your cost claim may not be allowed and you have a $50 taxable profit.
