I have heard that as a rule of thumb the IRS will cut you a lot of slack for five years on hobby income. The reasons for this is that most people don't last five years in a hobby business.

A start-up of any size has a lot of up front costs. The IRS understand this and has always encouraged the creation of small businesses by allowing business deductions for the equipment you need. There are limits to some items, like cars, but few people buy professional equipment for a hobby although I would bet there are a fair number of people that post here that have some rather tricked out garages.

But if you are not making a profit and paying taxes after five years the IRS feels like it might be time for you to consider another line of work as at that point you are just milking the deal.

Another thing that sends them into orbit is deducting for a home office. I have a home office, see clients, etc., but don't take a deduction for it. It is just not worth the hassle to me, and most of the time I meet people more in cafe's or bars to talk business.