Hobby Loss

There are some who say that decoupage is a décor trend whose time has passed. To them, we say “bah;” we’ll decoupage anything, from hope chests to toasters. If our papercrafting creations end up being especially cute, we sell them online through Snippetsy, our fave artisan website. This makes us a businessperson, which means we can claim all of our decoupage expenses on our taxes, right?

Well…sort of. As with anything else tax-related, the IRS has rules about what we can expense and what we can’t.

For one, we can’t expense more than we make. So if we spend $5,000 on decoupage supplies but only sell $100 worth of our finished masterpieces, we can’t claim five grand in business expenses. That’s not going to fly.

And two, our decoupaging gig has to be actually profitable for three years out of a five-year period. If it’s not, and we don’t have a really good reason why, the IRS is going to say our decoupaging is a hobby, not a business, and therefore the hobby loss rule kicks in.

What’s a hobby loss? It’s a cost we incur engaging in our decoupage hobby that we’re never going to recoup. Ergo, the hobby loss rule says that we can’t deduct decoupaging expenses on our taxes. We’re clearly doing it for fun and not for profit; any money we make doing it is a side benefit. If we disagree with the IRS’ assessment, we can always hire a tax attorney and try and contest it. But unless we start profiting on this whole decoupaging experience soon, we’re going to have a tough time proving our case.