The IRS and your hobby
 

I don't know if any one has seen the artical on MSN money about selling your hobbies. Hobbies provide a great way to relax from the daily grind for many people and it is also offer a way to make extra spending money. Be aware that when your hobby produces income you owe tax on it. A good friend of mine who was making and selling from her home and now she has to pay lots of money to the IRS.

I know Uncle Sam always has his hand out. Share the wealth and all.
I don't sell my quilts, I just give them away. No income from here at all.

Maybe a good write-off??? Naaa - probably not.

Funny how one would owe if sold but cant write off if lost, ruined or given away..

If you sell online, you will hear from the IRS by the end of the year!

Why would anyone think they would NOT owe income tax on money raised by selling quilts or other things they make? http://www.freesmileys.org/smileys/s...onfused001.gif

I look at it this way.......

If I sell my hobby, it ceases to be a hobby and more like work.

I give mine away too!

possibly because you rarely make any $$ at it! Usually you just cover costs, so it is NOT income, just recouping your $ spent!

How true...;0 But then it isn't too hard to show that, is it? Why did you say that they would hear from the IRS by the end of the year? Is this a new thing, or do they do that by the end of every year?

starting this year NEW laws went into effect. That is why you have to file your social to have a paypal or any other online billing service now!

totally agree

you may have made some money but there are SOOOOO many deductions you can take against it.

true--- as long as you keep good records (reciepts) when you do your taxes you can show your expenses- and your income and be able to not owe---if you have no receipts proving what your expenses are you will owe taxes on the income you earned...if selling your craft you need to keep good records to avoid financial problems (tax problems) down the road.

I have been doing taxes for many years now. If one starts a biz and can not show a profit in less than 5 years it becomes a hobby! The IRS does not care if that Biz is construction or quilting they just will not let u keep showing a lose on your tax return. With that said buy the time u take all the deductions for your materials & the depreciation on a $15,000.00 plus dollars for a long arm. Unless u are putting out 2 quilts a day I would have no idea on how you could make any money!

http://www.etsy.com/blog/en/2012/the...-dont-fear-it/ more info.

When you sell your quilts, you now have a business. Taxes are paid on business income.

Your friend must have been selling LOTS to owe LOTS of money. Did she not keep receipts to show her expenses?

Plus the IRS will collect Social Security on self-employed people. It's twice the rate that collected from those who work for an employer.

http://blog.auctionbytes.com/cgi-bin...7077.html/2/20 another link.you must sell over$20,000 and over 200 transactions.and not or-very important.

Actually, it is a good write-off. If you make quilts for Project Linus or for your guild to donate to homeless, NICU units, etc., you can take the cost of your fabric and other supplies used in the quilt as a donation. If you sell any quilts/blocks, etc., you can list that income and deduct your costs. It may not be much, but it's worth it sometimes if you do enough donation/charity quilt type things.

I design patterns, sell them, sell some quilts, and donate the quilts I make as mockups for patterns to my guild. I also edit patterns for other designers. I sometimes make only a few hundred a year, but I can deduct some of my fabric cost and it evens out. Better still, because I keep track of everything and report it, I don't have the IRS on my back.

This is interesting, I will be watching this thread. Years and years ago, I tinted photos (this was before colored prints became popular) to earn a little extra money. At that time my tax preparer told me I couldn't claim the cost of my paint and other supplies as a deduction as what I was doing was considered a "hobby"; however, I needed to report any monies over $50 I earned in a year.

it is not that most people don't think they owe tax, but they are probably selling them for a lot lot less than they are worth, considering the amount of time put in to make them.

Can we use those we donate to known non-profit organizations as a contribution if we have the appropriate record of the donation? Any one know? Of course then comes the question of the value of a contribution? Interesting post.

your tax preparer was incorrect. "Hobby" income is reported and the costs applicable to earning the income is deductible. Now it might change where the income and expese is reported on the return and might be subject to limitations (which might be what your preparer was telling you in simpler terms).

There have been several preparers in just our state who were subject to jail time for falsifying returns and one favorite was hobby income and expenses. It was the people who went to them that really got hurt. I know as I audited hundreds of them over several years. Very few people actually make a significant profit from their hobby. I knew a longarmer who spent probably tens of thousands on supplies (she had over 7000 computer patterns, hundreds of spools of thread, bolts and bolts of batting and lining, etc. Not to mention the $30,000+ Statler Stitcher). She could not support herself doing quilting and got so tired of all the work so she sold the whole thing.

She said she paid off the machine but when all was said and done she had no taxable income from the business.

"This form will only be sent to sellers who processed over $20,000 in goods and services sales and completed 200 transaction".
"I sure am not going to have worry about it. My income (disability) is already 5 grand under the poverty level and I sure didn't make 20 grand last year . If I could make that I wouldn't mind paying taxes. Even when I was working the most I made was 18 grand. Good thing prices then were not like now.
Its coming they are going to find a way to tax the air.

I donate all my pieced tops to PL. I rarely finish a quilt anymore unless I just happen to need a wedding gift or a baby is coming. Lately my line is dwindling so all have been going the PL direction. I did learn to keep receipts for EVERY Little Thing. My fabric receipts fill a gallon sized ziplock.
I learned to do this from my dad. Funny story here about his being audited in the late 50s. Two IRS men came to our dairy farm to audit his tax records. They questioned some tiny deduction for feed. He went to the cupboard and pulled out a paper sack, dumped it and plowed through the receipts until he found it. They didn't ask again. He even got more money back for the years they reviewed. I keep everything that the IRS might possibly want to see and then some.

If you have receipts for the materials used in the donated quilts and a confirmation of the donation, then yes, they can be listed as charitable contributions. The value is the cost of materials only, not your time or 'expertise'.

It's called "self-employment tax"... and it's 15%. Whenever you do work for someone and they don't withhold, but prefer to pay you directly and report it on a 1099 form, they come out better financially, but you will owe 15% on the income. So if someone is paying you under a 1099 reporting, be sure to charge them that extra 15%...

Funny story here about his being audited in the late 50s. Two IRS men came to our dairy farm to audit his tax records. They questioned some tiny deduction for feed. He went to the cupboard and pulled out a paper sack, dumped it and plowed through the receipts until he found it. They didn't ask again. He even got more money back for the years they reviewed. I keep everything that the IRS might possibly want to see and then some.

I had a similar situation. Was called in for an audit after I wrote a letter to Bill Clinton, telling him what I thought of some of his policies, back when he was president-- (don't tell me THAT was a coincidence...). Once the IRS examiner saw that I had detailed records for every bit of income and expenditure, she pretty much concluded the audit and said I didn't owe any more money. They won't waste their time once they see that you have kept good records.

It's a shame we have to spend so much of our life doing that, tho!

No you won't. You may or may not get a form from Paypal depending on how much you sell. The only time you "hear from the IRS" is when you're getting audited or there's a mistake on your return.

The VERY sad part of this is: When you try to wright off ALL of the $$$$ it costs for a SMALL quilting business (works best if you have a Great Tax person when knows about business tax laws), most offten you will hear back that "YOU DON'T OWN A BUSINESS, BUT YOU HAVE A HOBBIE" Now if that isn't talking out of both sides of Uncle Sam's mouth!!!!!

Just a recommendation, IMHO, if you are worried about your hobby/business. Spend the $$ to purchase the H & R Block Premium & Business software (they even include State if your state collects income tax). They clearly walk you through the whole process and even included tutorials if you need them on different aspects of deductions, including self employment. I have been using their software for years; have learned so much and feel very confident when I click the button to send my report to the IRS.

PS: and keep your receipt of the H&R software because you get to take that cost as a deductions.

I am so glad we send our taxes to a great tax preparer. He has done them every year since moving to VA from WV because we still have property in WV. Also, b/c I have always had some kind of in home business plus doing direct sells. (first Tupperware for years, now Stampin' Up!) But everyone is correct. Keep every receipt even if not sure - it is better to have some he can't use than wish you had them. But a big THANK YOU to everyone with this important informationl. Teresa

I keep all my fabric and sewing supply receits. at the end of the year it shows I spent more than I made.=loss. legit. I do give away far more than I sell but when asked to do a particular project and they settle on a price . . . it may cover the fabric but not the time spent so it is hardly worth it trying to say it's a business.

About ten or so years ago, I did craft shows it was away to be with my child growing up and making some extra money to help in family bills. Once IRS stepped in and came around booth to booth for a form to fill out so you could get taxed on the amount you made, is the time I quit crafting and going to all the craft fairs. I now just make things to give as gifts. Soon you'll pay for the air you breath!

How true but its fun and we enjoy what we do.

In that case, your record keeping will cover you. No one is asking you to pay taxes on money lost in a business. I made $60 on my business last year. I expected to pay taxes on it and I did. I expect everyone else to do the same. dnf

I agree 100 % I love my hobbies too much !! LOL

Yes, I can be a write off as a loss. Check IRS Publication 17 if you have to claim the money you earned. I was told a hobby can not be taxed. We all know that most of us do not sell our quilts for the real value they are worth. Time, supplies, notions, rulers, patterns, fabric (good quality is not cheap), electricity used, and not to mention the maintaince on the sewing machine. My understanding is that if you are not required to have a business license there should not be any taxation.

Yep...I have a resale/tax number...you bet I claim what I sell...and I usually don't have to pay much...my costs are deducted from any quilting I do...so it's not bad. I guess I'm strange...don't mind paying taxes...it's only fair.