Miscellaneous / Other Income

You must report all of your hobby income on line 21 of Form 1040. A hobby is defined as an activity not engaged in for profit.

You may be entitled to certain hobby deductions, but only up to the amount of income reported for each hobby. However, there are other limitations as well. For additional information, refer to Publication 535, Business Expenses. Publication 535 is available for download, or you may request a copy by calling 1-800-829-3676.

Here's the link...
http://www.irs.gov/individuals/page/0,,id%3D14477,00.html

This directly supports Jim's statement about all income being reportable.

Miscellaneous Deductions
You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2% of adjusted gross income floor. These expenses you pay:

To produce or collect income that must be included in your gross income,
To manage, conserve, or maintain property held for producing income, or
To determine, contest, pay or claim a refund of any tax.
You can deduct other expenses you pay for the purposes in (1) and (2) above only if they are reasonably and closely related to these purposes. These other expenses include:

Appraisal fees for a casualty loss or charitable contribution,
Casualty and theft losses from property used in performing services as an employee
Clerical help and office rent in caring for investments,
Depreciation on home computers used for investments,
Excess deductions (including administrative expenses) allowed a beneficiary on termination of an estate or trust,
Fees to collect interest and dividends,
Hobby expenses, but generally not more than hobby income,
Indirect miscellaneous deductions of pass-through entities,
Investment fees and expenses,
Legal fees related to producing or collecting taxable income, doing or keeping your job, or getting tax advice,
Loss on deposits in an insolvent or bankrupt financial institution,
Repayments of income or social security benefits,
Safe deposit box rental,
Service charges on dividend reinvestment plans,
Tax advice and preparation fees, including fees for electronic filing, and
Trustee's fees for your IRA, if separately billed and paid.
Are any of the expenses you have incurred and paid described or listed above?

Here's the link...
http://www.irs.gov/individuals/page/0,,id%3D14286,00.html

More on Hobby Expenses...
You can generally deduct hobby expenses, but only up to the amount of hobby income. A hobby is not a business because it is not carried on to make a profit. See Not-for-Profit Activities in chapter 1 of Publication 535.

Here's the link...
http://www.irs.gov/publications/p529/ar02.html#d0e1401