Why is the "Hobby Income" section later making me complete a Schedule C form? It did not make me do that last year.

[BKM2008]

My hobby income is not relevant enough to justify completion of a "self-employment" Schedule C form.

[ColeenD3]

It doesn't matter the amount of money you make at this, it may be SE income. If you meet the criteria, you must file a Schedule C.

Many people are engaged in hobby activities that are also a source of income. For example, some people started selling handmade items during the pandemic. These people must report this income on their tax return.

A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. This differs from those that operate a business with the intention of making a profit.

In determining whether their activity is a business or hobby, taxpayers must consider nine factors.

These factors are:

• Whether the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.
   
• Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.
   
• Whether they depend on income from the activity for their livelihood.
   
• Whether any losses are due to circumstances beyond the taxpayer's control or are normal for the startup phase of their type of business.
   
• Whether they change methods of operation to improve profitability.
   
• Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.
   
• Whether the taxpayer was successful in making a profit in similar activities in the past.
   
• Whether the activity makes a profit in some years and how much profit it makes.
   
• Whether the taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.

All factors, facts and circumstances with respect to the activity must be considered. And, no one factor is more important than another.

[fanfare]

This doesn't answer the question.

Having determined that the income is from a hobby, how to avoid the Schedule C ?

[BKM2008]

You are exactly right - the expert did not answer my question as the TurboTax program did not allow me to NOT file a Schedule C this year.

[Hal_Al]

@BKM2008  What is initial input place, in TT,  for your "hobby income"; a 1099-MISC, K-1, etc.  TurboTax is generating Schedule C because you answered something wrong in the interview.  

If you have no tax form (e.g. 1099-Misc), 

In TurboTax (TT), enter at:

- Federal Taxes tab (Personal in  Home & Business)

 - Wages & Income

Scroll down to:

 -Less Common Income

   -Misc Income 1099-a 1099-C (Press start)

    -On the next screen, select Hobby Income

[BKM2008]

Hi -

Thanks. I did do all of the correct steps you mentioned. I was issued an1099-MISC with an amount in box 2 (royalties.) Once the interview questions start, TT only gave me two options as to how to “claim” the royalties - 1. Under our rental property or 2. As a business (artist earnings, etc.) The interview did not have a hobby answer even though I charted the 1099-MISC under the “Other Income” and hobby section. It was very discerning.

[Hal_Al]

Royalties are usually self employment, so that's the only option when you enter a 1099-Misc with $ in box 2. 

To enter it as hobby income, you need to use a work around, in TT.  See my last reply for one of those workarounds.  The 2nd workaround is the enter the 1099-Misc with the $ in box 3.  That will give you an interview to provide answers that will direct it to other income, instead of Schedule C.

But are your sure it's not self employment. What did you do to get this money.  Receiving royalties for your previous work (e.g. author)  is usually self employment. 

[BKM2008]

Hi again -

It seems I was on the right track with your suggestion of putting the $ in box 3 - however, once I did do that - the questions did change a little, but in the end - TT STILL made me complete a Schedule C.

The “work” was video game streaming, I.e. Twitch. The amount was less than $600. When I input my 1099-MISC in my 2020 taxes, it didn’t make me complete a Schedule C for that year. However, nothing I seemed to do THIS year worked and TT, in the end, MADE me complete a Schedule C. My thoughts on this are - 1. The “rules” changed for 2021 OR 2. TT saw that this was the second year I received a 1099-MISC from Twitch and made me complete a Schedule C because of that.

[Hal_Al · Accepted solution]

Yes, that's it "TT saw that this was the second year I received a 1099-MISC from Twitch and made me complete a Schedule C".

A second year of the same income makes it more likely that it's self employment, and not a hobby*.  But , if you think it isn't, answer that question that you "got the income in 2021" only.  Lying to TurboTax to get it to do what you want does not constitute lying to the IRS.

*For help in making that distinction, see 

https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses  

[BKM2008]

Aww, you were the MOST helpful! Thank you!

In the end, I was pretty discouraged. I have entrusted TurboTax for 10 years now and went ahead and completed the Schedule C that it prompted me to do multiple times. I filed last night. I hope it doesn’t “bite me” in the end. I quit streaming late last year and don’t anticipate earning anything from Twitch in 2022, but I guess we’ll see what happens. *shrugs shoulders*