How can I deduct expenses for my model horse hobby that I buy and sell for?

You'll need to report the income from your model horse sales on Schedule 1, Line 8z as "Other Income" and write "hobby income" in the description. Unfortunately, the Tax Cuts and Jobs Act eliminated hobby expense deductions starting in 2018. Prior to 2018, you could deduct hobby expenses as miscellaneous itemized deductions on Schedule A (up to the amount of hobby income), but that's no longer allowed. So you'll pay tax on the full $1,200 even though you spent more than you earned. If you're really serious about your model horse activities, you might consider whether you qualify as a business rather than a hobby. Businesses can deduct expenses, but you'd need to show a profit motive and operate in a businesslike manner. The IRS uses a "9-factor test" to determine if an activity is a business or hobby, including whether you conduct the activity in a businesslike manner and intend to make it profitable.

I had a similar situation with my vintage toy collection and it was such a headache figuring out the tax situation. After getting conflicting advice, I found this AI tool called taxr.ai that really helped me understand the hobby vs. business distinction. I uploaded some of my sales records and expense receipts to https://taxr.ai and it analyzed everything and gave me a custom report explaining exactly how I should file. The report showed me that I was actually right on the edge of qualifying as a business rather than a hobby based on how I was operating. They outlined specific steps I could take to strengthen my case as a business (like creating a separate bank account and setting up a more formal inventory system). Super helpful and saved me a ton of research time!

Just wanted to follow up about that taxr.ai site. I decided to try it with my vintage comic book collection situation, and I'm actually really impressed! It analyzed my purchase patterns and selling history and showed me that I was operating more like a business than I realized. The detailed report helped me understand exactly which of the 9 IRS factors for business vs. hobby I was meeting and which ones I wasn't. It even created a customized checklist of things I could implement to strengthen my business case. I've already started keeping better inventory records and created a basic business plan based on their suggestions. Definitely worth checking out if you're in this gray area between hobby and business.

After reading this thread, I wanted to share something that helped me when I was dealing with a similar issue with my pottery hobby. I kept getting the runaround trying to call the IRS to clarify some questions about hobby vs. business rules. Someone recommended Claimyr to me, and it was a game-changer. Basically, https://claimyr.com holds your place in the IRS phone queue and calls you when an agent is about to answer. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I finally got specific answers about my situation from an actual IRS agent instead of just googling and guessing. The agent walked me through exactly what documentation I'd need if I wanted to claim my pottery as a business. Saved me hours of hold music and frustration!

Ok I need to eat my words about that Claimyr service. After spending 2 hours on hold with the IRS yesterday and getting disconnected AGAIN, I gave in and tried it. I was seriously shocked when I got a call back about 35 minutes later with an actual IRS agent on the line! The agent confirmed that for my baseball card collecting/selling, I should definitely consider filing as a Schedule C business since I've been tracking inventory and have a clear system for determining which cards to buy based on potential resale value. She walked me through exactly what records I need to keep and how to document my profit motive even though I haven't been profitable yet. This was information I've been trying to get for weeks! Wish I hadn't been so stubborn about trying it sooner.

Have you looked into forming an LLC for your model horse business? I did that with my vintage toy collecting/selling a few years ago, and it's worked out really well for tax purposes. You can deduct all legitimate business expenses against your income, and if you operate at a loss, those losses can potentially offset other income (though there are limitations if the IRS considers it a "hobby loss"). Just make sure you keep VERY detailed records of everything - all purchases, sales, supplies, even mileage if you drive to shows or to pick up inventory. Take photos of everything. The more documentation you have that you're operating like a business, the better position you'll be in if you ever get audited.

Everyone here is focused on the hobby vs business question, but there's another angle to consider. If you're mainly selling model horses that you previously purchased for your collection (rather than making/modifying them yourself), you might be able to treat these as capital assets. When you sell a capital asset, you report the sale price minus what you paid for it (your basis). So if you bought a model horse for $100 and sold it for $150, you'd only pay tax on the $50 profit. This might be a better approach than hobby income if you're primarily just buying and reselling without substantial modification.

Just to add another perspective... If you customize or restore the model horses before selling them, that effort might strengthen your case as a business rather than just collecting. You're adding value through your labor and expertise, not just buying and selling. I make and sell handcrafted jewelry and was in a similar position a few years ago. Once I documented my design process, tracked my time spent making pieces, and marketed my work more consistently, my tax preparer was comfortable treating it as a business on Schedule C, even though I wasn't profitable every year.