Assume that Judy is engaged in painting as a hobby. During the​ year, she earns $1,300 from sales of her paintings and incurs $1,400 expenses for supplies and lessons.

Because expenses incurred both in a business and for the production of investment income are​ deductible, why is it important to determine in which category a particular activity​ falls?


QI:6-10
What are the criteria for distinguishing between a deductible expense and a capital​ expenditure?


QI:6-12
Under what circumstances may a taxpayer deduct an illegal bribe or​ kickback?


QI:6-16
What documentation is required in order for a travel or entertainment expense to be​ deductible?


QI:6-25
Assume that Judy is engaged in painting as a hobby. During the​ year, she earns $1,300 from sales of her paintings and incurs $1,400 expenses for supplies and lessons. Judy​'s salary from her job is $65,000.

Requirement

What is the tax treatment of the hobby income and​ expenses?