Post by ccoyle78 on Nov 5, 2017 17:50:48 GMT -6
The IRS website and the SBA website aren't very helpful in explaining this topic. They offer a quick guide, but nothing that really provides direction other than "intention to make money". It brings the question of what exactly is "intention"?
Christina Coyle put it perfectly:
"If you sell to friends and family once in a blue moon, you are a hobby. If you have any of the following at all, you are a business:
A shop name
An Etsy (or other selling platform)
A Facebook page with the shop name
Do craft fairs
Sell to strangers
This is all a business. Profit is what is on the table after all costs are removed. There really is no such thing as a "hobby shop", it is still a business and all steps have to be taken."
It is a difficult thing to change our mindset, but the reality is, even doing what we love, if we can say "yes" to any of the above items, we are a business. The government agencies do not care what our profit is or even if there is a profit, all they see is money coming in and the IRS will see money expended to afford various expenses to continue making and selling products. In our hearts, what we do is a hobby to pay for components to let us keep doing our hobby, but only we care about that.
So what now? Register as required at the federal, state, and local levels. File a Schedule C form that goes with your personal 1040 at federal tax time. If you repeatedly show a loss, the IRS may send you notification to no longer file a Schedule C as a business. This means you will not be permitted to take any deductions for expenses and will put your income directly on your personal 1040 under "other income". The personal 1040 also has a spot to account for very limited expenses, so do take that as much as you can to bring the perceived "profit" down closer to the actual profit.
Happy creating!
Christina Coyle put it perfectly:
"If you sell to friends and family once in a blue moon, you are a hobby. If you have any of the following at all, you are a business:
A shop name
An Etsy (or other selling platform)
A Facebook page with the shop name
Do craft fairs
Sell to strangers
This is all a business. Profit is what is on the table after all costs are removed. There really is no such thing as a "hobby shop", it is still a business and all steps have to be taken."
It is a difficult thing to change our mindset, but the reality is, even doing what we love, if we can say "yes" to any of the above items, we are a business. The government agencies do not care what our profit is or even if there is a profit, all they see is money coming in and the IRS will see money expended to afford various expenses to continue making and selling products. In our hearts, what we do is a hobby to pay for components to let us keep doing our hobby, but only we care about that.
So what now? Register as required at the federal, state, and local levels. File a Schedule C form that goes with your personal 1040 at federal tax time. If you repeatedly show a loss, the IRS may send you notification to no longer file a Schedule C as a business. This means you will not be permitted to take any deductions for expenses and will put your income directly on your personal 1040 under "other income". The personal 1040 also has a spot to account for very limited expenses, so do take that as much as you can to bring the perceived "profit" down closer to the actual profit.
Happy creating!