Taxes: Misc income or small biz?

[joefrog]

Hey guys, an opinion if you please...

I just don't know what to do on taxes. I've made a decent amount selling pens since I started in March and I'm thinking I have to declare some of it. Should I list it as "misc income" or should I list is as business income? I do NOT have a business license of any sort. I'm just doing this as a hobby.

Thanks!
Joel

 

[The Penguin]

Schedule C on your federal return

though I've never met anyone that felt like they should pay "more" taxes.

:tongue:

 

[joefrog]

Schedule C on your federal return

though I've never met anyone that felt like they should pay "more" taxes.

:tongue:

Well, it's not that... it's that at least a few of my customers have said how their purchases will be a "tax writeoff" so I wonder if that trickles back down to me.

 

[Smitty37]

Hey guys, an opinion if you please...

I just don't know what to do on taxes. I've made a decent amount selling pens since I started in March and I'm thinking I have to declare some of it. Should I list it as "misc income" or should I list is as business income? I do NOT have a business license of any sort. I'm just doing this as a hobby.

Thanks!
Joel

Unless it's a lot of money the IRS is not likely to question you it you list it as misc income. If you have to put down where it came from just list net profits from sales of hobby items and don't try to list gross profits and expenses. For a small amount of money the IRS will buy this because it will cost more to question it then they'd be likely to recover in added taxes.

Schedule C is ok too - you don't need a license to have a business....but you will need better records of your income and expenses. You will have to pay the self employment tax if you have more than $400 profit.

On the other hand the IRS is not likely to come in the middle of the night to haul you away to jail if you 'forget' to report it. It would probably cost them more to track you down than you'd owe.

 

[Smitty37]

Schedule C on your federal return

though I've never met anyone that felt like they should pay "more" taxes.

:tongue:

Well, it's not that... it's that at least a few of my customers have said how their purchases will be a "tax writeoff" so I wonder if that trickles back down to me.

Not usually, unless it was a pretty big expense for them. It would probably be listed under advertising (as a promotional item) and even if they get audited, so long as they have a bill, the IRS doesn't care if it's you or Walmart.

Pens from many sources are commonly used as promotional items and that expense wouldn't be likely to raise any red flags. I used them for years and never got questioned.

 

[frank123]

Approach it as a business, many things are deductible that way that are not otherwise.

This means you need complete and accurate records and an area of your home or shop dedicated strictly to the business if you want to take it as a deduction.

A marginally profitable home business is one of the most available yet unused tax advantages that is open to just about anyone to make use of. (You do have to follow the rules pretty closely, the IRS has various publications available and there are also books that tell how you can do it)

 

[Smitty37]

Approach it as a business, many things are deductible that way that are not otherwise.

This means you need complete and accurate records and an area of your home or shop dedicated strictly to the business if you want to take it as a deduction.

A marginally profitable home business is one of the most available yet unused tax advantages that is open to just about anyone to make use of. (You do have to follow the rules pretty closely, the IRS has various publications available and there are also books that tell how you can do it)

That is true - but for many if not most "hobby" businesses it might not be worth the bother. If you are selling a thousand dollars worth of pens a year, the record keeping can take more time than making the pens and you're not likely to save any money on your tax bill. Business profits over $400 are subject to 15%+ Self employment tax (unless your other income is over $116,000 or so) and medicare tax that other income income is not subject to.

 

[lyonsacc]

Posted this discussion a couple of weeks ago.

http://www.penturners.org/forum/f18/u-s-tax-reporting-pen-hobbies-106530/

 

[plantman]

Facing the music !!

:musical-note::musical-note: Just tonight on the local news we had a woman that was selling scrapbook items on e-bay for the last three years without paying taxes. The Feds took her to court for tax evashion on the $300,000 she made and did not report. She is going to spend the next 18 months in prison, settled with the Feds for $85,000, that she doesn't have, and is being sued by Hobby Lobby for $2.2 million. The woman that was selling her supplies, is spending 5 years in prison for stealing those supplies from Hobby Lobby. The woman thinks her sentence should be reduced to house arrest in order to save the state $30,000 a year to keep her locked up and so she can continue to be a piller of the community because of her work with challenged children. They, the Feds, are calling this a " White Collar Crime that needs atonement ". A guess they never realy watched the government at work !! Jim S

 

[thewishman]

I've always reported as a business, that was what I meant it to be from the start. There have been several years without much income and several with good income. It forces me to keep track of things all year.

 

[Smitty37]

:musical-note::musical-note: Just tonight on the local news we had a woman that was selling scrapbook items on e-bay for the last three years without paying taxes. The Feds took her to court for tax evashion on the $300,000 she made and did not report. She is going to spend the next 18 months in prison, settled with the Feds for $85,000, that she doesn't have, and is being sued by Hobby Lobby for $2.2 million. The woman that was selling her supplies, is spending 5 years in prison for stealing those supplies from Hobby Lobby. The woman thinks her sentence should be reduced to house arrest in order to save the state $30,000 a year to keep her locked up and so she can continue to be a piller of the community because of her work with challenged children. They, the Feds, are calling this a " White Collar Crime that needs atonement ". A guess they never realy watched the government at work !! Jim S

Yea they'll come after you for that kind of money, and they should. But that's a little different then the 50 or 75 additional tax you might owe on the profit for a thousand dollars gross. $1000 gross lets say S400 profit 25% marginal tax bracket tax = $100. They can hardly even call you on the phone for that small amount.

 

[Smitty37]

I've always reported as a business, that was what I meant it to be from the start. There have been several years without much income and several with good income. It forces me to keep track of things all year.

If you intend it as a business, by all means treat it as a business...but if you are making pens as a hobby and sell one now and then there is no real need to put yourself through all of the bookkeeping and record keeping you need for a business. People get more problems from trying to deduct hobby expenses than not reporting hobby income.

 

[dogcatcher]

I've always reported as a business, that was what I meant it to be from the start. There have been several years without much income and several with good income. It forces me to keep track of things all year.

If you intend it as a business, by all means treat it as a business...but if you are making pens as a hobby and sell one now and then there is no real need to put yourself through all of the bookkeeping and record keeping you need for a business. People get more problems from trying to deduct hobby expenses than not reporting hobby income.

That is fine until the state boys get hold of you, then the state use taxes on all of those items bought from out of state and the sales taxes start to add up. Then top that off with penalties and you will be getting bank loans to pay the state. That out of state lathe that costs $1000 is taxable for use taxes if you live in Texas, those supplies from PSI are also subject to the same use taxes.

A lot easier to play by the rules and not have to worry about it. Make sure you know what can happen with all local and state taxing authorities then decide if you want to play right or take the easy road.

 

[sbwertz]

What about sales taxes? Here in AZ if I sell pens I have to collect sales tax on them. I've been getting around that by donating all sales to my church building fund. Now I have two galleries that want to sell my turnings. I will be selling on consignment, but they will collect the sales tax, so all I have to report is income tax.

 

[Smitty37]

I've always reported as a business, that was what I meant it to be from the start. There have been several years without much income and several with good income. It forces me to keep track of things all year.

If you intend it as a business, by all means treat it as a business...but if you are making pens as a hobby and sell one now and then there is no real need to put yourself through all of the bookkeeping and record keeping you need for a business. People get more problems from trying to deduct hobby expenses than not reporting hobby income.

That is fine until the state boys get hold of you, then the state use taxes on all of those items bought from out of state and the sales taxes start to add up. Then top that off with penalties and you will be getting bank loans to pay the state. That out of state lathe that costs $1000 is taxable for use taxes if you live in Texas, those supplies from PSI are also subject to the same use taxes.

A lot easier to play by the rules and not have to worry about it. Make sure you know what can happen with all local and state taxing authorities then decide if you want to play right or take the easy road.

But that is also true of everything else you buy on the internet that come from out of State - unless it is an item exempted from the tax. How you deal with with your State Sales/Use tax is an entirely different matter. Move to Delaware - we don't have one, except on vehicles which includes mobile homes and they don't call it a sales tax.