# tax time



## prap (Jan 28, 2011)

It's been awhile since I've posted on this site, matter of fact I was still trying to set up my shop and got a lot of great advice on different tools the last time I posted. So after I got my shop outfitted I started fooling around with some ideas on what I could repurpose and make something different. I made a couple of bird houses out of old barn board and shutters for my wifes' garden, well friends and family saw them and thought they were great.
So I made a few more and gave them away. They all said I should start selling them, I laughed but I gave it a try. I made 15 and took them to a flea market. I sold out within 90 minutes, still not convinced I tried it again couple of months later and got the same results. Since then they have gotten a lot fancier (adding antique hardware to them)and the price tag has gone up a little, I also started making coat racks too. I did my first two craft shows last fall and I think I did ok. I have a full time job and only do this as a hobby but I'm going to have to claim this on my taxes this year. I know what I paid for materials the problem is how do I figure out what I should charge for labor. No two are the same, all a little different. If I really thought about the time I put into these just trying to find the all the stuff that goes on these I'ld be working for free or losing money, but try telling Uncle Sam that! I really do it as a hobby and really enjoy making them and coming up with new ideas to make them different. The money I make really just pays for my hobby ( tools, materials )
Phil

Any advice,PLEASE


----------



## LiveEdge (Dec 18, 2013)

Hate to tell you this, but Uncle Sam doesn't care about your labor at all. It counts for nothing against your gross profit.

I'm not a CPA so do your due diligence, but I do have a photography hobby that makes money so I've been exactly in your shoes. Gross income minus materials and a few other things like mileage, fees for the shows, etc. But everything deductible will be tangible. All of this prevents us from declaring that we are hot stuff and thus our time is worth $10,000/hour and after that there is no profit to tax.


----------



## Tim457 (Jan 11, 2013)

Yeah your labor doesn't account for anything. If you put all the money you made after expenses back into tools then you won't have any taxable income anyway. You need to show that though.

So basically what you're going to need to do is account for every penny of revenue and every penny of expense, including the tools that you purchased. Think of everything from shop supplies to materials to utilities to mileage to shows, etc. Then you might get away with using some tax software, but you're better off seeing an accountant if you have no idea how to input your business information.


----------



## TropicalWW (Feb 20, 2011)

The IRS has very strict rules on what it considers a business and what it considers a hobby. You have a hobby business, so you can only write off expenses equal to income. Don't try to write off anything more!


----------



## Tim457 (Jan 11, 2013)

It's a little more complicated than that. If he can show he's intending to make a go of it as a profit making business he can get away with claiming losses as a business in the beginning. But the hobby way is the safer, easier to defend way.

This link is pretty decent for an IRS explanation of the factors that make it hobby vs business and has a link to a more detailed but harder to follow publication.
http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions


----------



## RHaynes (Dec 18, 2013)

I'm actually a tax lawyer - it's my "real" job. If you want to talk about it, send me a message and we'll set up a time to chat for a few minutes. I'm more than happy to help a fellow LJ. But yes, it's important to get this right. Audits are no fun.


----------



## prap (Jan 28, 2011)

Thanks guys 
I wasn't sure if I wasn't going to get any replies seeing I haven't posted anything in 3 years! I'll have to post a picture of one of the bird houses as soon as I figure out how! I don't think I can do anything as far as the tools go, I've got a few thousand in tools but I bought them 3-4 years ago before I started making these. I even put a heating system in my garage but I did that year before too. Another problem that I have is that I buy a lot of stuff at flea markets and yard sales so there are no receipts for that stuff. I do have records for the stuff I bought at auctions and EBay but that only accounts for about 40- 50% of it, if that. I've tried to do this by the book, I have a resale tax number and I started a small business checking account. I don't really want to have to get an accountant, that would defenitly put me in the hole. I would just like to enjoy my hobby make enough to pay for it. Tim, thanks for that link that was helpful. Rhaynes, thanks for your offer I'm going to take you up on that, I'll be in touch. I knew that the labor part was going to be tricky, but I guess not for Uncle Sam, it just doesn't exist. Thanks again guys greatly appreciated.


----------



## jim1959 (Feb 14, 2010)

If it is not a registered business why would you have to claim it?
I don't think we do in Canada, i am not 100% sure on that but seems unfair to have to file a hobby income unless your talking thousands of dollars profit. I should check into the tax issue in Ontario, Canada l guess before l start in the spring was planning as well to start selling things to see how it went but if l have to pay Canadian goverment wouldn't be worth the start up interesting topic good luck.


----------



## RHaynes (Dec 18, 2013)

"If it is not a registered business why would you have to claim it?
I don't think we do in Canada, i am not 100% sure on that but seems unfair to have to file a hobby income unless your talking thousands of dollars profit. I should check into the tax issue in Ontario, Canada l guess before l start in the spring was planning as well to start selling things to see how it went but if l have to pay Canadian goverment wouldn't be worth the start up interesting topic good luck."

In the United States, all of your income, regardless of character, is subject to income tax. There are some specific provisions removing certain types of income from "gross income," but the starting point is if you make it, you pay tax on it. It doesn't matter if the business is registered/not-registered, hobby/profession, etc. If you have income, that income is subject to tax. I have several clients that didn't claim income because they thought it was a "hobby." One went to federal prison, the other got audited and is on a monthly payment plan for all the tax he owes.


----------



## TheDane (May 15, 2008)

My wife had a Mary Kay cosmetics gig for a couple of years … the paperwork was a PITA. She made a few dollars on it and got her own cosmetics at discount prices, but the complications that come from inventory, accounting, reports, etc. made it a waste of time.


----------

