Are the revenues and costs included in taxable income?

Your client, Ricky Smith, works full-time as a computer programmer. In his spare time, Ricky makes custom wood cabinets and bookcases. Ricky started this hobby years ago when he and his wife had little furniture and storage in their home. Ricky’s skills and artistry improved through the years, and he now occasionally builds and sells pieces for family and friends. In fact, he now earns more revenue from his woodworking than his costs (e.g., costs of materials and supplies). He has come to you, his accountant, to find out whether the revenues from his hobby need to be reported on his Federal tax return. What is the proper tax treatment? Are the revenues and costs included in taxable income?