Question

John is single, age 33, and informs you that he spends most of his weekends playing in a cover band. John’s income and expenses from this activity are listed below. Band Activity for 2019 CD Sales Income $18,000 Band equipment $7,000 City fines for noise violations $500 CDs and Supplies $4,000 Recording Equipment Rental $6,000 Truck Rental for Equipment $5,000 Other assumptions before considering the band activity: Assume John has no dependents, he has wage income of $55,000, and his itemized deductions before AGI limitations are $8,000 real estate taxes, $2,000 mortgage interest and $5,000 of donations to qualified charities. 1. Assuming the activity is a hobby, please calculate John’s taxable income. 2. Assuming the activity is a business, please calculate John’s taxable income.

Answer 1

Hobby expenses are not deductible. Income from hobby is taxable income.

Below is the calculation:

Particulars	Amount	Amount
Gross income:
Salary	$          55,000
Interest	$                   -
Other income	$          18,000
Gross income		$          73,000
For AGI deductions		$                   -
Adjusted gross income		$          73,000
Less:
Standard deduction	$          12,200
Itemized deduction	$          15,000
Higher of the two		$          15,000
Taxable income		$          58,000

Taxable income is $58,000