Leno pursued a hobby of knitting mittens in his spare time. His AGI before considering the hobby is $38,000. During the year he sold the mittens for $9,000. He incurred expenses as follows:

Supplies$3,000Interest on loan to get business started600Advertising5,200

Assuming that the activity is deemed a hobby, how should Leno report these items on his tax return?

Group of answer choices

Include $9,000 in income and deduct $8,800 for AGI.

Ignore both income and expenses since hobby losses are disallowed.

Include $9,000 in income and deduct nothing.

Include $9,000 in income, deduct nothing for AGI, and claim $8,800 of the expenses as itemized deductions.