Hobby or Business?

purplehookerSeptember 7, 2009

I'm really hoping someone here can point me toward some good information! I've read through info at the IRS website, but I'm having trouble figuring out the differences between a "business" and a "hobby". I make baby blankets and scarves and other things both as gifts and to sell. I've had a table at a few craft bazaars and markets but I don't usually make a lot of money. I'm not doing this just to make money, I'm doing it because I love crocheting! But at the same time, I kinda need to sell some things so that I can afford to get more yarn...

Therein lies my dilemma - yes, I'm trying to make money, but at the same time, I'm not really doing anything "extra" in order to make a profit. I'm not taking tax deductions, I'm not really advertising (other than the shows I go to, but then I'm advertising the show, not my stuff specifically), and I'm certainly not making any kind of decent "hourly rate".

I have looked into making it a business, but I don't think it would be profitable and I'm afraid that focusing on the "business" aspect will take all the fun out of it. Help!!

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oilpainter

Was there a specific reason you want to be known as a business. Is it just to give yourself a boost be calling yourself a business, or is there a more concrete reason. If it's the former and you don't like the title of hobby, think of yourself as free lance crafter.

There is just too much involved as setting yourself up as a business, when by your own admission you are not making too much money at it. I think it would be more of a headache than a help.

Good luck and keep that hook going. It always gave me great satisfaction when someone wanted to pay for one of my creations. So take pride in a job well done

    Bookmark   September 7, 2009 at 8:16PM
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purplehooker

Thanks Oilpainter. The thing is, I'd rather NOT be a business, but there isn't a lot of info about being a hobbyist. It seems like either way, I have to pay taxes on any income from sales and I should be collecting and paying sales tax. A business has the benefit of being able to take deductions but that's just more paperwork.

In any case, this will not be my primary source of income. I'm just paranoid about getting in trouble. I tend to overthink and over-research things which I think is a big part of my problem right now.

    Bookmark   September 7, 2009 at 8:36PM
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donna_loomis

Yes, I think you are overthinking things a bit. I sometimes sell items I've made, but I can't knit or crochet fast enough to even think about calling it a business. As for claiming income from the few things you might sell, I don't think the IRS is going to come after you. Trust me, they have bigger fish to fry.

    Bookmark   September 7, 2009 at 10:25PM
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empress

Purplehooker,

I understand your concern. Have you been to this page on the IRS website? There is a list of questions that I think will help you figure this out and put your mind at ease.

http://www.irs.gov/newsroom/article/0,,id=169490,00.html

Here is a link that might be useful: IRS questions re: Hobby or Business?

    Bookmark   September 8, 2009 at 12:16AM
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purplehooker

Thanks Donna and Empress. I've gotten some feedback and advice from a few others who have been through this, so I think I'm relaxing now. Still not quite sure what all I need to do or how, but I'm calmer so that should help LOL. Thanks again!

    Bookmark   September 8, 2009 at 1:52PM
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pris

I doubt very seriously that you are pushing your taxable income into another tax bracket. When you subtract your costs for what you sell it is even more unlikely that you make enough to increase your tax liability. If you want to set your mind at ease, keep track of what you spend for supplies and check into the allowable deductions for working out of your home and you will probably find that, for income tax purposes, you are losing money.

    Bookmark   September 9, 2009 at 11:37AM
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purplehooker

Thanks Pris. I've gotten a lot of answers from an old friend who was a CPA (now a SAHM) so I think I've gotten it all figured out.

    Bookmark   September 10, 2009 at 8:59PM
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acraftylady

Well here in NY if you do the shows you have to have a tax ID number and business liscense no way around it so if you don't need that in your state then you are lucky you can just pay the table fee and do the shows. My friend does beaded jewelry at the shows and has to have the tax ID and a business liscense and has to file her taxes accordingly as it's owning your own business basically. Don't know how much she makes but she buys all her gemstones wholesale in bulk so I think she does OK.

Best to check all the tax laws and stuff for your state to make sure. Mary

    Bookmark   September 13, 2009 at 7:56PM
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