MicrostockGroup

Do you put your iStock income as foreign-earned income. I haven't bothered up until now, but someone had mentioned to me that I should. 

^^ Is the correct answer.  Sean beat me to it

Thanks for the responses. I'm a U.S. citizen and have moved abroad which is why this topic came up in conversation with another iStocker who's in the same boat. Both of us weren't really sure since we're earning iStock income from a Canadian company but living in another country. Nearly all the photography I'm doing now is outside the U.S.  My day job is exempt from U.S. taxation, and I do pass the above criteria. 

My accountant says it must be reported as income if you are a US taxpayer regardless of the country of origin.  If your income is small enough, it will probably never be noticed if you neglect to report.  If however you earn significant income here, and don't report it, interest and penalties apply if you are caught.  If you have payments directly deposited into your account or cash  a check, it is impossible to hide should an audit take place. 
Now the good part.  Since you are earning income, you are a business and can deduct expenses associated with your photography (your accountant will know how).  For the first three years, I ran my iStock business at a loss, meaning more expenses (camera,lenses, parts of airfare and vacations, and gear) than income.  It helps greatly with taxes.  I don't have personal experience, but my accountant assures me that ignorance of the need to claim this money as income will not change any penalties should you be audited.

That's my understanding for Australia too. If it's a hobby you neither declare the income nor use the deductions. You need to be set up as a business, as you say, to get the benefit of business deductions and you can only deduct against the photography business, not against other sources of income. I'm treating it as a hobby for tax purposes. I sure am not making a profit once all the equipment depreciation, software upgrades etc are taken into account. But it pays for the hobby.