Gig Income, an Inherited Position, and a "Hobby" That Isn't
Devon, 31 and single, works full time as a warehouse supervisor (2024 W-2 wages $62,000; federal withholding $7,100). He also drove for a rideshare platform: Forms 1099-K ($18,400) and 1099-NEC ($3,150), plus $2,760 of platform commissions he paid. He drove 14,200 business miles out of 21,000 total miles and kept receipts for gas $3,900, insurance $1,800, repairs $950, registration $190, and vehicle loan interest $1,100. Separately, he inherited 200 shares of XYZ from his father, who died June 12, 2023, when the shares were worth $31,000; Devon sold them in November 2024 for $27,500. Finally, he "sells" 3D-printed figurines at craft fairs: $2,200 of sales, $1,900 of filament and supplies, and a $1,200 printer bought in March. He describes the figurines as "just a hobby that got a little out of hand."
1. How should the rideshare activity be reported, and should Devon use the standard mileage rate or actual expenses? Show the numbers.
Read the worked answer
Gross receipts first. Both the $18,400 on the 1099-K and the $3,150 on the 1099-NEC go on Schedule C line 1 as gross receipts; the $2,760 of platform commissions is a separate expense. Never net the fees against the 1099-K - the IRS matches the gross figure, and netting invites an underreporter notice.
Mileage comparison (2024 = 67¢):
- Standard: 14,200 × $0.67 = $9,514
- Actual (before depreciation): ($3,900 + $1,800 + $950 + $190 + $1,100) = $7,940 × business-use ratio. The ratio is measured on total miles, so 14,200/21,000 = 67.6%, giving about $5,368.
Standard mileage wins by roughly $4,100. The 6,800 non-business miles (commuting and personal use) are never deductible.
Sch C net profit: $18,400 + $3,150 − $2,760 − $9,514 = $9,276. SE tax ≈ $9,276 × 92.35% × 15.3% = $1,311; half ($656) is an above-the-line deduction, and the QBI deduction applies to the net profit less that half.
Consequences of the choice: the standard mileage rate embeds a depreciation component. If Devon switches to actual expenses in a later year, he must use straight-line (or ADS) depreciation on the deemed allowance, and he cannot claim the deemed depreciation in the year of sale as an adjustment. Choosing standard mileage now also forfeits bonus depreciation and §179 on the car. He cannot switch freely back and forth; make the election deliberately and keep the contemporaneous mileage log.
2. Devon sold the inherited XYZ shares for less than their date-of-death value. Is the loss deductible, what is its character, and what should you verify?
Read the worked answer
The loss is deductible and it is long-term. Inherited property takes a basis equal to fair market value on the date of death (or the alternate valuation date if the estate elected it), so Devon's basis is $31,000, not his father's cost. Sold for $27,500, the result is a $3,500 long-term capital loss, reported on Form 8949 with box F checked and carried to Schedule D.
Why "long-term" matters: §1223(11) treats inherited property as held more than one year regardless of when the heir sells. That is favorable - the loss offsets other long-term capital gains and up to $3,000 of ordinary income per year, with the rest carried forward.
The post-death decline is a real, allowed loss. There is no rule barring a loss merely because the decedent's own basis was higher; that is the whole point of the step-up (or step-down).
Verify before filing:
- Whether the estate's Form 706 or the estate's records elected alternate valuation - that changes basis and the amount of the loss.
- The actual date-of-death per-share value from a reliable pricing source, not the client's recollection.
- That the buyer was not a related party (§267), which would defer the loss.
- Whether any shares were held by a surviving spouse or jointly, which could produce a partial step-up only.
3. Devon's 3D-printing activity ran at a loss on a cash basis. How should the $2,200 of sales, $1,900 of supplies, and $1,200 printer be reported, and why?
Read the worked answer
Treat it as a hobby, not a business. Devon's own framing plus the absence of a profit motive (one year, loss, no business plan, no separate books) points to an activity not engaged in for profit under §183. That changes the mechanics entirely:
- Gross receipts of $2,200 go on Schedule 1, line 8j (other income), not Schedule C. No self-employment tax applies.
- Cost of goods sold is allowed - the $1,900 of filament and supplies directly reduces the $2,200, leaving $300 of net other income.
- The $1,200 printer is not deductible. Under §183, expenses other than COGS are deductible only in a prescribed order and only as miscellaneous itemized deductions, and miscellaneous itemized deductions subject to the 2% floor are suspended for 2018–2025. So the printer produces no benefit at all.
- No Schedule C loss, no SE tax, no QBI deduction. Reporting a $900 Schedule C loss would overstate deductions and mischaracterize the activity.
If the activity grows: once Devon has a genuine profit motive (multiple profitable years, separate books, time and expertise, advertising), he should convert to Schedule C. At that point the printer becomes depreciable (or §179-eligible), the loss can offset wages, and SE tax and QBI come into play. Note that even for a hobby, an activity cannot generate a deductible loss - hobby expenses can never exceed hobby gross income.