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Forum topic by LeeG posted 03-29-2010 07:47 AM 2473 views 0 times favorited 9 replies Add to Favorites Watch
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LeeG

40 posts in 1658 days


03-29-2010 07:47 AM

I have been doing a bit of research tonight and thought I would post my findings. The basic question I was wondering is: If I am doing woodworking primarily as a hobby, but I sell some of my stuff, do I have to declare that as income for tax purposes?

The answer, unsurprisingly, is yes. You have to file a 1099-MISC form listing this income. The good news is, you can also file deductions for materials and equipment up to the amount of income, with the net result of you have 0 as a declared income from your hobby.

Now, why would anyone bother with this? First of all, it is unlawful not to. Secondly, by showing that you are involved with this has a hobby, if you at some point in the future decide to do so as a business, the IRS is much more likely to let you get away with a loss because you can show that you had reasonable expectation to make a profit.

Where the IRS gets real sticky is using expenses from a hobby to offset income from another source. Say I make 40K a year at my regular job. I cannot claim the money I spent on a new table saw as a deduction from that income, unless I can show that my woodworking is a legitimate business. There are several things the IRS wants to see to assume a legitimate business, and past history is one of them. Please check out IRS document 535 under Deducting For Business->Not for Profit Activities for more detail.

-- Lee in Phoenix


9 replies so far

View hObOmOnk's profile

hObOmOnk

1381 posts in 2765 days


#1 posted 03-29-2010 12:03 PM

You are half right.
Seek advice from a tax professional.

-- 温故知新

View Jesse's profile

Jesse

66 posts in 1856 days


#2 posted 03-29-2010 03:15 PM

I am a CPA and I would recommend seeking advice from your tax preparer. I would be happy to answer PM’s on this topic if it would help anyone.

Regarding 1099-misc forms, they are filed by the payer, not the person receiving the money. They are then sent to the recipients (you). This lets you know that the IRS has been notified of this income, and they will expect to see it somewhere on your return!

-- Jesse, Hopewell Jct., NY

View WoodSparky's profile

WoodSparky

200 posts in 1739 days


#3 posted 03-29-2010 03:22 PM

Cash is King. So why pay the Joker?

-- So Many tools, So little time

View jasony's profile

jasony

47 posts in 1716 days


#4 posted 03-29-2010 06:11 PM

This is what I do with my current WW business. I don’t make much gross income on it per year, but what I do make I get to offset with tool deductions. It’s a business (albeit a low-profit one), but I can legitimately deduct tools, which ultimately makes them cheaper…. and easier to justify. :)

View closetguy's profile

closetguy

744 posts in 2529 days


#5 posted 03-30-2010 01:51 AM

Jesse is correct. You will never file any 1099. You declare income from 1099(s) that you receive from other companies such as interest income, or in the case of some of us, payments from companies for work done. Technically, all income, regardless of the source, is subject to federal tax. Many of us who are self-employed make quarterly tax payments using an IRS form. Now, why anyone would be hell-bent on claiming income from something they make in their garage on the weekend and sell to their neighbor is beyond me. I agree with woodsparky.

That being said, if you want to deduct your tools and materials, then you need to establish yourself as a business with all the local licenses and sales tax ID. Even with all this, if you don’t show a profit within three years, the IRS will declare your business a hobby and disallow deduction claims. However, they still want you to claim your hobby income and pay tax on it, but without the benefit of deductions. In this case…..cash is king.

-- I don't make mistakes, only design changes....www.dgmwoodworks.com

View FlWoodRat's profile

FlWoodRat

732 posts in 2546 days


#6 posted 03-30-2010 02:12 AM

I avoid the entire IRS Income tax issue relative to my woodworking. I don’t sell anything. I give it away and I do not claim any deductions…. No income, no write off’s and the recipents of my gifts don’t have to file 1099s.

-- I love the smell of sawdust in the morning....

View hazbro's profile

hazbro

109 posts in 1627 days


#7 posted 03-30-2010 02:26 AM

I write off all of my tools, work miles on the truck, any of the sales tax for material that becomes a permanent fixture in the house…etc, etc…..

but it also says right there on my W2: occupation: carpenter, employer: _ Construction Company.

And if I were to sell something…...I’m just not set up to take credit cards.

-- measure once, keep cuttin' til it fits

View Jerry Earley's profile

Jerry Earley

11 posts in 1633 days


#8 posted 03-30-2010 02:27 AM

Be careful with your deductions. Make sure you have reciepts. My CPA does a great job getting everything in order. I was audited last year because of deductions I claimed related to schedule C income ( I do contracted sales for a fishing lure company.) My instructions to CPA is if the deduction creates a red flag leave it out, I had rather eat a few deductions than get another audit. Not to bad for a one year audit but they can go back like 7 years if they want.

-- Jerry Earley ( Perserving the American Wood Heritage One Barn at a Time)

View Mogebier's profile

Mogebier

170 posts in 1670 days


#9 posted 03-30-2010 02:39 AM

I married an accountant so I would never have to worry about things like this or do my own taxes.

-- You can get more with a kind word and a 2 by 4, than you can with just a kind word.

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