Business income vs Hobby income vs Misc/other income. Also Amazon Vine Program.

[takineko]

Is there a "benefit" to counting something as Hobby or misc/other income vs business income? Or are these simply different categories to list different sources of income?

From what I understand, any income that you make needs to be reported to the IRS and you need to pay taxes on it regardless.   

I am self-employed and work remotely, but this year I was invited to take part in the Amazon Vine program. As you may already know, Amazon Vine is a program where you are given a list of items that you can request for. The requested item is sent to you and you then review the item. In 6 months, the item becomes yours.  However, while they are "free" items, you still need to pay the taxes of those items. They calculate the value of the items based off of the "fair market value", which I don't totally understand, but I get that this is how the amount is estimated. 

From the Amazon Vine Help page, "You will receive your 1099 form by January 31st only if: you received over $600 in payments OR if there were any taxes deducted / withheld from you."  But I understand that even if I received less than $600 worth of items, I still need to report that "income" to the IRS.

I don't do any deducting for business expenses ever, so for my situation I don't think there's any "benefits" in claiming it as hobby or misc/other income vs business income.  

From reading other threads on this, many people want to claim their amounts from the Amazon 1099-Misc as "hobby" income. But as of 2018, you can't deduct hobby expenses.  I don't know what you would even deduct as a hobby expense for the Amazon vine program since you receive items and not money.  I joined the Amazon vine program for fun and to see how it worked. This is definitely not a business for me, and would probably be a hobby based off of the information from this link: 
https://turbotax.intuit.com/tax-tips/small-business-taxes/when-the-irs-classifies-your-business-as-a...

To sum up, I could use more information about the differences between the types of incomes and why it matters to distinguish between them. Also if there are "benefits" to claiming income as one vs the other in situations where you can choose. If I claim my Amazon vine "income" as a hobby, I've also read that the IRS will send you an audit to verify that it's a hobby, which sounds scary and makes me want to just claim the income as a business even if I don't consider it to be one just so I don't have to worry about dealing with that (especially if I don't see any benefits to claiming it as a hobby or misc/other income).

Thanks in advance!

[John-H2021]

Hello Takineko,

To be considered a business you must be doing it with the intent to make a profit and file the income and expenses https://www.irs.gov/newsroom/earning-side-income-is-it-a-hobby-or-a-businesson a schedule C and pay tax plus the 15.3% self employment tax on the profit.

If it is truly a hobby then the income gets reported as other income and no expenses can be taken, you pay regular tax on the income but no self employment tax.

Here is are a couple of links to articles on hobby versus business income

https://turbotax.intuit.com/tax-tips/small-business-taxes/when-the-irs-classifies-your-business-as-a...

https://www.irs.gov/newsroom/earning-side-income-is-it-a-hobby-or-a-business

[takineko]

Hi John,

That first link doesn't appear to work for me. Getting a 404 on the IRS site for that link.

Am I correct in understanding that you're saying that the "benefit" for claiming it as a hobby would be that I don't have to pay the 15.3%  self employment tax on the "profit". In my case, it would be me claiming the Amazon Vine thing as a hobby, and then I would pay the "income" as other income and pay regular tax on it but don't have to pay the additional 15.3% of that because it is not a business income?

My only concern now would be how I would prove to the IRS that it's a hobby? What documents would I need to prove it? From the link you showed are the questions I would need to consider if this was a hobby:

"Do you put in the necessary time and effort to turn a profit?"
What would that even mean? I'm getting items fore free which would be my profit I guess? But I don't know what the necessary time and effort for this would be. I'm writing the reviews for the item as I would normally write a review for Amazon on an item that I liked or disliked in particular.

"Have you made a profit in this activity in the past, or can you expect to make one in the future?"

This is my first time trying this out, and I'm still unclear about if getting an item is a profit since I'm not spending any money to get the item besides in taxes. 

"Do you have the necessary knowledge to succeed in this field?
I'm writing reviews on these items, so I guess I would have knowledge of the item and it's applications enough, but I don't know what it would mean to "succeed in this field" for this particular case.

"Do you depend on income from this activity?"

I do not.

"Are your losses beyond your control?"
I don't think there's any losses, let alone any beyond my control, again due to the income being "items" with some market value.  So I am not spending anything, and therefore cannot have any losses?

[jobejobie]

OM! Great conversation!

[John-H2021]

You are correct Hobby income doesn't pay SE tax but you also can't write off any expenses against it.

From your answers to the questions I would say you have Hobby income, The IRS usually questions business income and if you can't prove to the IRS it's a business then they consider it hobby income. I haven't seen them question hobby income and make it business income

[Milad2608]

Hi
I hope you are doing well

I talked to someone in your department about my tax filing forms and she did not have any idea about how we can file a 1099.NEC form that created by Amazon as a hobby income and she referred me to IRS but in IRS, nobody can answer my question, they asked me to file the form first then they will decide about it. How can we say that we did not receive any cash for amazon as Amazon vine members so we should not pay tax based on the Amazon 1099-NEC form. It is a very big problem for me now and i could not file my tax with turbotax now.

Best regards

[GeorgeM777]

If the 1099-NEC you received from Amazon represents hobby income, then you need to report this hobby income on your return.  In TurboTax, hobby income is entered in the Less Common Income section.  

If you are using TurboTax online, select Income & Expenses, 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.  

@Milad2608

[Milad2608]

Thank you for your response. Amazon did not mention anything like hobby income or etc.In part 2 of 1099-NEC they wrote: "Payer made direct sales totaling $5,000 or more of consumer products to recipient for resale" but in reality, I did not receive any cash for this .

I received the item(it was free) and shared my reviews on the amazon website just for fun or a hobby.

There is no profit like cash for me. Your adviser told me I can not file it(1099-NEC)as hobby income but another adviser on your website wrote that I can file it as hobby income if I did not receive any cash or if there is no profit for me like cash (https://ttlc.intuit.com/community/self-employed-group/discussion/business-income-vs-hobby-income-vs-...)

I am confused!

[DianeW777]

You are correct.  Amazon does not decide if this is hobby income or self employment income.  According to them, and based on your comments, you received product for your service as a reviewer, which is income to you.

You can decide if it is hobby or business income.  This IRS link will help you: Business or Hobby?

Key elements:

1. 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.
2. 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 tax law is that you must show a profit three out of every five consecutive years to be considered a business.

Once you decide what type of income this is you can use the links below to see how to report.

• How do I report hobby income?
• Where do I enter Schedule C

@Milad2608

[Milad2608]

Thank you !

In online turbo tax,  in the section of hobby income we dont have 1099-NEC form and we have "income not on 1099-K" , so should i put my 1099-Nec information on "income not on 1099-K" form?

[GeorgeM777]

As @DianeW777 discussed in a prior post, if you have determined that the income in question is hobby income, then you can report it as such on your return.  In TurboTax online, hobby income is reported as follows:

1. In Federal, left margin, select Wages & Income.
2. On the Your income and expenses screen, scroll down to the last section, Less Common Income.
3. Click Start across from Miscellaneous Income, 1099-A, 1099-C.
4. On the next screen, Let's Work on Any Miscellaneous Income, click Start across from Hobby income and expenses.
5. Enter your information.

The 1099-NEC you received from Amazon is an important document, but only you can determine how such income should be characterized.  If it is hobby income, then follow the above stops.  

@Milad2608

[AnHnP]

@Milad2608 

I too had this issue and did not feel like the below advice to add it in the "Less Common Income" section made sense (since specific 1099-NEC is not able to be added there). SOOOO, I continued investigating and found that 1099-NEC info can be added under "Other Common Income" also in the Wages & Income section. When entering it here, you are given an option to select Hobby Income. Hope this helps!!! 🙂

[Reesecup52]

I also received a 1099-NEC from Amazon. When I was entering my taxes with online TurboTax, I noticed when I searched for form 1099 – NEC, it asked to jump to the form and asked if I received a 1099-NEC and I clicked yes and added it. It then asks about who paid me and how the federal ID number was formatted, along with the other questions of what the reason for receiving the form 1099-NEC. Then it asks about uncommon situations that apply and one of the reasons is “this is not money earned as an employee or self employed individual, it is from a sporadic activity or hobby (this is not common). So my question is, should I be entering the information under the form 1099-NEC or under the less common income stated as hobby income? I feel like entering it under the 1099-NEC gives more opportunity to tell that it’s from Amazon and still can state it’s hobby income. 

[Reesecup52]

Yes, this is what I just asked about. Makes much more sense to put it under the 1099-NEC form because you can put in Amazons tax ID number and that it’s the Amazon vine program. 

[AbrahamT]

Absolutely, put it under the form 1099-NEC as long as you are able to indicate that the money is earned from a sporadic activity, then that's the way to go.