Should I file income made by sales of an app (Google/Android) as hobby income or use schedule C?

[alexander-schmit]

In 2015 I developed a small app for the AppStore which resulted in $140 of income. I claimed it as a hobby income on last year's tax return.

In January 2016 I released a new app and it resulted in $3,000 of income. With deductible expenses of about $200 (development software $100 and access to the Apple AppStore $99). I have not actively worked on the app since February 2016 and sales have dropped to $0 now.

I am in doubt if I should file this again as hobby income or use schedule C because of the higher income amount this new app had generated for a while. Can you give any recommendation?

Thanks

[Patrice]

The answer depends on whether you develop apps with the primary intention to make money, or if you basically make apps for enjoyment. 

If you develop apps to make money (ie: you have a profit motive), you report your income and expenses on Schedule C. If you have profit of over $400, you must also complete Schedule SE and pay the resultant self-employment tax in addition to income tax. If you have a loss, the loss is deductible against any other income you may have. 

If you develop apps primarily for fun, your app development is an activity not entered into for profit but is considered a hobby. Your app income and expenses are treated under what are commonly called "hobby income" rules. In that case your gross earnings are entered on Line 21 (other income) of your 1040. You can claim your app development expenses only up to the amount of your income, and only if you itemize deductions on a Schedule A. Even then, it must be as a 2% miscellaneous itemized deduction. Hobby income, though, is not subject to self employment tax.