As an independent contractor, I am a Professional Battlebot builder who competes in a National League. In '22 I was paid prize money are my supplies able to be wrote off?

[knightzack12]

I buy/build and design them from scratch. The league is second to Battlebots tv show as far as production value. For placing high or winning events we are paid out prize money. However the expenses associated with building these are exclusively associated to my secondary profession (battlebots builder) I made money however I did not turn a profit in 2022 however I have an extensive list of expenses associated with this. Also I have a 1099 from this business's prize money payouts.

[JohnB5677]

It sounds like you're on the border between a business and a hobby.  Do you plan to make a profit in the reasonable future, (within 3 years)?

If you file a Schedule C you will have to be able to prove that you have a "Profit Motive". 

If you receive income for an activity that doesn't carry out an intent to make a profit, the expenses you pay for the activity are miscellaneous itemized deductions and can no longer be deducted. You must still report the income that you receive. 

"If your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby, which would prevent you from claiming a loss related to the business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions." 

When the IRS Classifies Your Business as a Hobby

See page 1 of 64 IRC 183 Overview Activities Not Engaged in For Profit (ATG)⁠⁠⁠⁠⁠⁠ATG) This is the IRS guidance for an auditor. 

If this does not completely answer your question, please contact us again and provide some additional details.

[knightzack12]

Yes as of this year I did not turn a profit, in the future I do see a possible stance in which I do. The competition at this point is basically my advertisement for the future, as I have a well known reputation I’m currently designing products to be sold. Maybe not 2023 as a profitable year but I see 2024 being a very real chance of turning a profit and even continuing that on a larger scale as the community I would be selling to is significantly growing at the current time span. 

[knightzack12]

Along with this I come from the racing world, in which a lot of the bigger tier small guys. World of outlaws series for example can turn a profit some years but experience great risk. That would be the same case for me I believe. I’m already a top tier competitor and the prize money is out there to turn a profit on that alone. For example I finished 6th at a world championship in 2022 if I would of finished first I would have been in the green for 2022. 

[Vanessa A]

How many years have you been doing this?  If this is several years in, you wouldn't likely meet the standard of 3 out of 5 years of making a profit.  

Here are things to consider before trying to take your expenses as a business expense.

"in the future I do see a possible stance in which I do" A possible stance does not necessarily reach the level of intention nor that you are depending on it for income, it is more of a maybe maybe not.  

After you review the guidelines to making it a business versus hobby, do remember, if the IRS would come back and decide it was a hobby instead of business, you would be subject to underpayment penalties and interest.