If you're like millions of Americans, you enjoy hobbies like sports, hiking, antique collecting or quilt making-- you name it. Hobbies can also be a source of income and if that's the case, the IRS wants to know about it. I'm talking about stamp and coin collecting, craft making and horse breeding to name a few.

Here's the bottom line: you must report any income on your tax return that you get from a hobby. Not to take the fun out of it, but there are special rules and limits for deductions you can claim for a hobby.

Here are 5 basic tax tips you need to know if your hobby also brings in a profit:

1. Business versus Hobby. How you report the income from hobbies is different from how you report income from a business. There are 9 factors to consider to establish that an activity is actually a business engaged in making a profit.

Basically, if you run this as a for-profit company, change your methods of operation with a goal to make it more profitable, and you depend upon this activity for your livelihood, that's probably a business.

2. Presumption of Profit. Let's say your hobby of breeding horses has been profitable over the past few years. The IRS wants its cut. Activities that consist primarily of breeding, training, showing, or racing horses are presumed to be carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. You have a profit when your gross income from your activity exceeds your expenses.

It's wise to check with your tax advisor to determine if your hobby has, in fact, become a business in the eyes of the IRS.

3. Allowable Hobby Deductions. You may be able to deduct ordinary and necessary hobby expenses. An ordinary expense is one that is considered to be common and accepted for your activity. Think supplies for those of you who sell your crafts. A necessary expense is one that is helpful or appropriate. That might be a conference to learn how to be a better craft-maker.

4. Limits on Expenses. In general, you can only deduct your hobby expenses up to the amount of your hobby income. If your expenses are more than your income, you have a loss from the activity. Hopefully, the entertainment you've had from this hobby will suffice because you can't deduct that loss from your other income.

In order to deduct those hobby expenses, you need to itemize on your tax return. Special rules may apply so check with your tax advisor to make sure you're reporting this correctly.

5. A Note for Online Sellers. These days millions of people use eBay, Craigslist or one of many online platforms for businesses and hobbies. According to the IRS, "If you have online auction sales of property where the sales price is more than your cost or other basis, you usually will have a reportable gain." These gains may be business income or capital gains.

You also need to remember the number $20,000. The rules change when you have at least 200 transactions or you make $20,000 in sales. In that case, the IRS treats this as a business, and that means you need to follow the business income rules.

My intention isn't to take the fun out of your hobby. My goal is to keep you out of trouble with the IRS and a potential audit. How much fun is that?