Tax Guys : Hobby vs Business (1 Viewer)

[Dan Lambskin]

Can any tax guys give me some insight here?

Basically my wife has started selling crafts at local markets and may look to expand online (ETSY or something like that) 

Not expecting to get rich or anything but for reference she made about $500 in December and I could see her making a few hundred bucks a month pretty consistently 

So based on that let's say she can make ~5K a year...i know I need to report that so we can give our favorite Uncle a cut, but are we better off just claiming it as hobby income, or would she be better off forming an LLC or something and making it a business?  Note:  the less complicated the better because I would be the one stuck doing all the record keeping, etc so I'm not necessarily looking to maximize her profits or anything

Is it just as simple as tracking her income and listing it as other income when we file? 

If we did go the Hobby route can she still deduct mileage or other expenses, or only as a Business?  Although with the new laws probably a good chance we end up taking the standard deduction going forward 

 

[eoMMan]

No need to form an LLC.  Just do a schedule C. 

Yes, she can deduct her expenses (keep receipts/bookkeeping records).

 

[glvsav37]

its all cash? she prob doesn't need to do anything. But if you want to deduct, then I think you need to report it. So its prob best to form at least aDBA (Doing business as), opening a business account and started the process of opening a business...who knows where it could go. 

Just know that anything claimed as a DBA will be reported as additional personal income and it could effect the tax bracket you fall into (maybe not $5k now, but if it takes off it will) 

Depending on what she makes though, you may consider an S-corp down the line just to insulate your personal finances from the business legally. If she makes glassware and someone cuts themselves on it and decides to go after you, then you don't expose yourself personally. (I know, it sucks but it has happened). There is very little needed in record keeping if you subscribe to a service like fresh books which is a very simple online version of Quickbooks. 

 

 

[BroadwayG]

No input on the taxes, will figure that out here soon, but my wife did the same thing last year. She formed an LLC to put my mind at ease.

 

[Dan Lambskin]

its all cash? she prob doesn't need to do anything. But if you want to deduct, then I think you need to report it. So its prob best to form at least aDBA (Doing business as), opening a business account and started the process of opening a business...who knows where it could go. 

Just know that anything claimed as a DBA will be reported as additional personal income and it could effect the tax bracket you fall into (maybe not $5k now, but if it takes off it will) 

Depending on what she makes though, you may consider an S-corp down the line just to insulate your personal finances from the business legally. If she makes glassware and someone cuts themselves on it and decides to go after you, then you don't expose yourself personally. (I know, it sucks but it has happened). There is very little needed in record keeping if you subscribe to a service like fresh books which is a very simple online version of Quickbooks. 

 

She's really just starting out, but I'm guessing she will be getting some payment by check or possibly get a Square reader to take cards

The liability is something I'm concerned about as well, mainly she's doing stuff out of wood / cork (which I guess could result in splinters / nail pokes) but also looking to make stuff from old beer and wine bottles 

 

[glvsav37]

She's really just starting out, but I'm guessing she will be getting some payment by check or possibly get a Square reader to take cards

The liability is something I'm concerned about as well, mainly she's doing stuff out of wood / cork (which I guess could result in splinters / nail pokes) but also looking to make stuff from old beer and wine bottles 

if she is accepting CC's through square, then I think she really should start the business paperwork. I know the bank i use req a 'business checking act' for square transactions and they actually offered it as a perk to avoid fees (having the square account). Plus, its good to start keeping the business income and expenses separate from personal. Even though as a DBA, the government sees it the same, for your bookkeeping and record keeping it helps to have separate accounts, credit cards, etc. and run the whole business out of there. Year after year, she can track the progress easier.  

DBAs are easy, I think it was about $35 and some simple paperwork when I did it. Then you get your tax ID and can open a business account anywhere. 

I hear you about liability, one of the reasons I moved from a DBA to an S-corp. I don't know the deep details vs an LLC, i went with what my accountant recommended. You never know what crazies she will sell to. 

 

[Steve Tasker]

Income is income.  The "hobby" rules really only come into play if she is running a net loss.  A net "hobby loss" is not deductible, whereas a business net loss is deductible.  iMO, either would be considered self-employment income in what you've described.

Whether she starts an LLC or carries on the business personally will make no difference on your taxes.  They will each just be reported on your Schedule C on your tax returns.  The advantage of the LLC over the personal is legal protection.  I'm not a lawyer so can't comment on that.

 

[Jayrod]

The business route seems to fit.  When I was a CPA (years ago), I never once reported anything as a hobby.  It seems like a very rare and limited circumstance. 

 

[E Street Brat]

Gonna need to see those cans to give an accurate answer 

 

[eoMMan]

Gonna need to see those cans to give an accurate answer 

Dan Lambskin has luscious cans. PM shuke for the pics.