It depends whether your 1099-Misc was received in connection with your business or whether the work you performed was non-business related, e.g., a type of hobby. However, because you used the term "artist grant" in your post, we need some additional information before advising how to handle this income and expense.
The IRS has stated that grants are taxable, but they may not taxable provided the following conditions are met:
- The grant is awarded on an objective and nondiscriminatory basis under a procedure approved in advance by the Service, and
- It is shown to the satisfaction of the Service that one of the following requirements is met--
a. The grant is a scholarship or fellowship and is to be used for study at an educational institution that normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where the educational activities are carried on. For these purposes, grant recipients need not be limited to degree candidates, nor must the grant be limited to tuition, fees, and course-required books, supplies and equipment. A recipient may use grant funds for room, board, travel, research, clerical help or equipment, that are incidental to the purposes of the scholarship or fellowship grant.
b. The grant qualifies as a prize or award that is excludible from gross income under Internal Revenue Code section 74(b), if the recipient is selected from the general public. For this purpose, the recipient may keep the prize or award, and need not authorize the foundation to transfer the prize or award to a governmental unit or to another charity.
c. The grant's purpose is to achieve a specific objective, produce a report or similar product, or improve or enhance a literary, artistic, musical, scientific, teaching, or similar capacity, skill or talent of the grantee.
Does any of the above apply to your situation? Additionally, does your work as an artist constitute a trade or business, e.g. do you do this work to earn a profit and do you offer your art services to others?
If your artist grant does not fall within the above IRS requirements, then the income is taxable. If your art work is your business, then you can deduct the $1,000 expense as a business expense on Schedule C, Profit or Loss From Business. You will need to use TurboTax Premium (online version) or TurboTax CD/download to enter expenses associated with self-employment.
If you need to report this income as self-employment income, then from Wages & Income, scroll down to Self-Employment (if you are using TurboTax CD/download, then scroll down to Business Items and select Business Income and Expenses (Sch C)). Enter your information on the screens as appropriate.
However, if your work was more like a hobby and not a business, your $1,000 expense would not be deductible. You would also have to report the total income you received--$1,500--on your return despite the fact that you had $1,000 in expenses. Hobby income is taxable income, but hobby expenses are not deductible.
In TurboTax, hobby income is entered in the Less Common Income section. If you are using TurboTax online, select Wages & Income (left margin), scroll down the screen to Less Common Income. You might have to click on the Show more drop-down arrow to reveal all of the options. Click start across from Miscellaneous Income and enter your information on the subsequent screens.
If you are using TurboTax CD/download, the process is essentially the same. Keep in mind that your expenses associated with your hobby income are not deductible. In other words, you cannot use those expenses to offset your hobby income.
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