|Forum topic by LeeG||posted 03-29-2010 07:47 AM||2677 views||0 times favorited||9 replies|
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