If your activity is a business, the income and expenses are treated very differently. First, income and expenses are reported on Schedule C, Profit or Loss from Business. And if you have more expenses than income, you can use those losses to offset other income, such as wages from a job.It may be tempting to classify your hobby as a business in order to be able to deduct expenses, but keep in mind the criteria the IRS uses to determine whether an activity is a hobby or business mentioned above.