Richere is a new client. She tells you that during the past year for fun she made quilts and sometimes sold them at local craft fairs. She said she earned about $1,750 doing this. Her tax preparer should: (a) Report this income on Schedule C and assist Richere to reconstruct her expenses for any items related to the production of the quilts, booth costs, and travel to the craft fairs. (b) Tell Richere that because she has no profit motive, the income is not taxable and the expenses are not deductible. (c) Explain the hobby loss rules to Richere and explain that the income should be reported on Schedule 1, line 8 but as this is a hobby, any expenses she has are not deductible. (d) Advise Richere that the income is reportable and that you will assist her to reconstruct her expenses which may be deducted on Schedule A, line 16.
Richere is a new client. She tells you that during the past year for fun she made quilts and sometimes sold them at local craft fairs. She said she earned about $1,750 doing this. Her tax preparer should:
(a) Report this income on Schedule C and assist Richere to reconstruct her expenses for any items related to the production of the quilts, booth costs, and travel to the craft fairs.
(b) Tell Richere that because she has no profit motive, the income is not taxable and the expenses are not deductible.
(c) Explain the hobby loss rules to Richere and explain that the income should be reported on Schedule 1, line 8 but as this is a hobby, any expenses she has are not deductible.
(d) Advise Richere that the income is reportable and that you will assist her to reconstruct her expenses which may be deducted on Schedule A, line 16.
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