Unfortunately, the IRS generally views dog breeding as a hobby and not a business. You may only deduct hobby expenses equal to hobby income. You cannot take a loss on a hobby.
To enter hobby income and expenses in TurboTax please follow these steps:
- Sign in to your TurboTax account
- Click on Federal Taxes tab
- Choose Wages and Income
- Scroll down to Less Common Income and click Start
- Scroll down to Miscellaneous Income, 1099-A, 1099-C and click Start
- Click Start to right of Hobby income and expenses
If you believe that you are in this business with a profit motive, you may report the income and expenses on Schedule C, Profit and Loss from Business.
See these three articles for more on how the IRS determines if your activity is a hobby or a business:
The IRS generalizes with this statement (referred to as the "3 of 5 rule"):
"The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses."
If you determine that your activity is a business and report it on Schedule C, then you can deduct your expenses. You would enter your information in the Business Income and Expense section of TurboTax. Your principle activity code for dog breeding is 112900. Your individual expenses (costing under $2500 each) can be entered under Other Miscellaneous Expenses.
