• Report income from a hobby to the Internal Revenue Service.philat??lie. collection de timbres. image by Blue Moon from Fotolia.com
  
  Collecting rare dolls, coins and stamps, or making craft items and selling them can subject you to Internal Revenue Service tax reporting requirements. If you collect items with the intention of selling them at a later time for profit, educate yourself on IRS regulations to avoid an audit down the road.
  
  

Capital Gain

• Any money you make from your hobbies must be reported to the Internal Revenue Service as income, according to the WorldWideWeb Tax website. In addition, tax deductions you take are limited to the amount of hobby income you report to the IRS. If you do not itemize your taxes, you can't take the deductions. If you want to be able to take them, you have to itemize, using Form 1040, Schedule A. These deductions are subject to a 2 percent adjusted gross income floor. You must report any sales from hobby collections (coins, stamps or other collectibles) as capital gain on your tax return. If you incur a loss, you are not allowed to deduct that loss on your taxes, according to WorldWideWeb Tax.
  
  

Other Income

• Tax law requires you to report income from "an activity from which you do not expect to make a profit." IRS Publication 17 gives as an example a hobby or farm you operate for pleasure or recreation. You are limited in the deductions you are able to claim, which can't total more than your reported income.
  
  

Significance

• IRS Publication 535, Chapter 1, states that activities entered into as a hobby or for sport are generally not used for profit. Individuals, estates, partnerships, trusts and S corporations are the only ones limited to claiming not-for-profit losses, and this does not apply to hobby activities, according to the IRS. The IRS uses several measures to determine whether you participate in an activity for profit. Some of these include conducting the activity in a "businesslike manner," depending on any income to make a living, time and effort expended on the hobby, any losses are attributed to circumstances beyond your control, you and others have knowledge necessary to conduct your hobby as a successful business, you adjust your methods of operation to make your hobby profitable, your hobby is profitable some years, you succeeded in profiting in other hobbies in the past and you expect to make a profit from the appreciation of assets used in your hobby, according to Publication 535.