Hello, jaschneirdo. Thank you for coming to Just Answer and allowing us to help you with your question. The difference between a hobby and self-employment according to the IRS is whether you are trying to make a profit. They call it the "profit motive". If you are trying to make a profit, then you can deduct your expenses as a business. If you are doing the activity for other reasons, then it is a hobby. That's the overall view. As far as specifically proving that you are trying to make a profit, one of the rules of thumb is whether you make a profit beyond your expenses for 3 years out of 5. This is one rule of thumb, but it's not enforced strictly. Another way to prove a business, is to keep records in a business-like fashion. Even if you pay more expenses than you make, as long as you keep records like a business and can show that you're trying to make a profit, you don't have to actually show a profit. Basically, think like a business. If you were really trying to make money at this endeavor, would you pay more expenses than you make year after year, without doing something different? If your expenses exceed your 1099 earnings, then just make sure you look like you're trying to make a profit and you'll be fine. It's really a matter of interpretation by the IRS whether it's a hobby or a business if you don't show a profit on your Schedule C.
Another thing to keep in mind is that you only pay self-employment tax (the self-employed person's equivalent to an employee's Social Security and Medicare withholding) on the profit from your Schedule C (the earnings minus expenses). You only have pay SE tax if your profit is more than $400 a year. If you pay SE tax, you will get credit for half of the amount you pay on the front page of your 1040 form, before your taxable income is figured.
I hope this answers your questions. Feel free to ask for further explanation.