Tax Advice for kit hobby?

Grant asks: I am NOT qualified, but my two cents, on the situation in the US: 1. Any money you have coming in has to be reported as income somewhere. 2. It's possible that you can report it (at least in the US) on schedule C as a sole proprietership and deduct your expenses. Just because you lost money in your first year doesn't mean it's not a "business activity". But if you don't have any hope or plan to turn it into something profit-making, it's probably a hobby. Under some circumstances hobby expenses might be itemized deductions if you itemize, but the deductions cannot exceed gross income from the hobby. This would mean for example that if you spent $10,000 on parts and expenses, but only sold $3,000 worth of stuff, that at least you won't have to pay income tax on the $3000. This area is a little hairy. There are some potentially onerous taxes associated with stocking large quanties of parts/assemblies/computers that might be of value to your business, depending on how your locality figures inventory taxes. Sitting on inventory more than a year or two can be incredibly costly if your jurisdiction has inventory taxes. IRS Publication 535 has some of the tests for whether it's a hobby or a business. Tim.