As a CPA in tax practice, I just wanted to add some insights to this discussion. Although I do not have any dive professionals as clients, the principles and requirements covering this area of tax law are fairly well established.
1. The IRS will apply hobby loss rules as far as allowing losses on a reported business activity (Schedule C Sole Proprietorship) so the taxpayer will have the burden of proving that he is engaged in the activity with the intent of making money. Typically, however, the rule is that the taxpayer must show a profit 2 out of 5 years before risking hobby loss limitations. This, however, is subject to auditor judgement at any time.
2. Both DMs and Instructors can potentially operate Schedule C businesses. DMs can lead and organize dives and dive trips. Instructors can do this as well as providing lessons.
3. The costs of instruction to obtain DM or Instructor certification are not deductable business expenses in that these qualify you for a new occupation and are not intended to enhance your existing occupation. However, if you are already certified as an instructor, courses you take to add specialties i.e. adding nitrox instruction would be deductable.
4. The costs for equipment must be depreciated unless you have sufficient revenues to elect section 179 expensing. I haven't checked, but I suspect scuba equipment would be 3 or 5 year property meaning you would have to recover the cost over this period. Also, if you only have one set of equipment then you will need to determine the business percentage use to determine the amount which may be depreciated. If you use separate equipment for instruction, then you can deduct this 100%.
5. I don't know what folks were talking about taking a charitable deduction on the use of scuba equipment. Unless you donate the equipment itself to a charitable organization, merely using it while engaging in charitable activities is going to be a mighty stretch which will likely not survive an audit. If you used the equipment exclusively for charitable purposes, there maybe some portion that could be depreciated, but don't count on the IRS allowing it.
These are merely my observations and should not substitute for consultation with a tax professional regarding your particular situation. Just remember that all deductions and their allowability are subject to audit, however, the risk of being selected for audit is generally low, unless you are engaged in some activity that generates audit red flags.
