Can I deduct expenses on a hobby on the federal return?

For federal returns from 2018 through 2025, no. The Tax Cuts and Jobs Act suspended the miscellaneous itemized deduction subject to the 2 percent of AGI floor, which is where hobby expenses used to live.

The income still goes on Schedule 1 line 8j as other income. The expenses are not deductible federally for the relevant years. After 2025 the rule could revert under current law unless extended or replaced by new legislation, but EA candidates should answer based on the current 2024 and 2025 rules.

State treatment varies. Some states still allow hobby expense deductions to the extent of income, but the EA exam is federal.

If the activity actually meets the trade or business standard, the better answer is to classify it as Schedule C from the start. Then the expenses are fully deductible, the loss may offset other income subject to material participation and basis rules, and the activity becomes eligible for QBI and retirement plan contributions. Run the nine-factor analysis honestly and document the workpapers either way.