Change from Business to Hobby?

[Atari88]

Hi there. I make residual income from music. Music I have created in the past gets licensed each year and I make money from that. I get 1099s from the business I work with. Every year I do not make a profit as I spend more than I make. TurboTax suggested that I consider changing how I file next year to a Hobby instead of a business. My revenue from

music licensing each year is around $2k. This is not my full time job. I do it just for fun. Should I keep filing this as a “business” even though there are losses each year or as a “hobby”? If a hobby, what do I do differently? What forms do I need to complete, and what do I need to tell/give to TurboTax next year? Thank you for your help! 

[PatriciaV]

The advantage of filing this activity as a business is that you can easily report your expenses and reduce (or eliminate) your taxable income. As long as you have a loss, you don't pay self-employment taxes.

Reporting this as a hobby eliminates the possibility of self-employment taxes and any concern that you aren't pursuing a profitable business. However, the Tax Cuts and Jobs Act eliminated itemized miscellaneous deductions, including hobby losses, until after the 2025 tax year. (i.e., Hobby expenses are not deductible from 2018 to 2025.)

If you choose to report the 1099 income as a hobby, you will enter this as Miscellaneous Income that is reported on Form 1040 (the main federal tax form).