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Hey maker! You enjoy making things and maybe you are considering recuperating some of those funds spent so that you can keep making things. Well, before you jump into it, let's first consider if you are a hobby or a business.
First, I want to clear the air with mindset. When we are talking about hobby vs business, we are NOT going to talk about a 'hobby business' or a 'side hustle', those are still businesses. How you view your business, just a side thing or an actual job, it's still a business. Remember, we are going by legal terms here, not feelings.
Hobby or Business
So the short answer is that if you are selling, you are likely a business and you'll start registrations and filings at your first $1 and no later (prior is better though!).
Let's ask ourselves: Do I sell my creations?
- Yes, but only at cost to family if they beg. The fact that you really don't want to have a special name, sell to strangers, or care about any kind of profit says it all. You are a true hobby!
- Yes, but only at craft fairs. Yes, even if you sell using your own name and only at craft fairs, you are a business. Save all of your receipts so you can take full advantage of your allowed expenses.
- Yes! I even have a fancy name in mind! Having a fancy name, selling to the public, starting a shop on Facebook, Instagram, TikTok, ETSY, Faire, etc., all of these things contribute to the idea that you have a business. Begin saving all of your receipts so that you can take full advantage of your allowed expenses.
Have you figured out if you are a Hobby or Business? If so, the next question is: When do I *HAVE* to file taxes?
- True hobby. You will report your income on the "other income" area of your personal federal tax return. I know, but Uncle Sam wants to know it all. You may be allowed some exemptions, but you'll need to read the IRS instructions or talk to a professional about it.
Business. You report everything to the federal government with your personal taxes. The nice thing about being a business is that you get to write off certain supplies and other items as expenses that will go against your income. SAVE THOSE RECEIPTS!
Sales tax is a state requirement and if your state has sales tax, then you will report your gross income and all exempted sales (out of state, marketplace, wholesale) to come up with what you owe the state (HINT: it should be the same, or really close, to what you collected from your customers). The frequency of filing depends on your state.
Check out these products to help your journey.
- The Basics of Starting a Business digital book
- The Makers Community
- Free Accounting & US Tax Compliance Facebook group
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