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cbarnes

Taxes.. Yep, I Said The Evil Word

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cbarnes    2

I was wondering how others are handling pottery expenses as a business.   this is our second year buying material and selling.  are most of you running as a cash based business and expensing all material purchases as they are purchased.  and just claiming the income as its sold. depreciating equipment, etc. or do you maintain material inventory and record cost of goods sold estimating the costs of clay, glaze, electricity etc etc on each piece.  last year I recorded all cash purchases as material expense but I wasn't sure if that was correct since we are technically manufacturing.  anyone have advice??  I'm going to try to find a cpa but I didn't have any luck last year finding a competent one at the last minute.

 

thanks

 

 

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GEP    863

I claim my deductions on a cash basis as they occur. Figuring out my expenses on a "per pot sold" basis is too many tiny math problems for me. My cpa has never once suggested it. I don't think the IRS considers us "manufacturing."

 

I don't depreciate large equipment either, such as kilns. If the cost is under a certain threshhold (I think it's $17,000) you can choose to either depreciate or deduct the whole thing. I'd rather claim the biggest deduction right away.

 

The only stuff my cpa depreciates are major home improvement projects.

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Mark C.    1,807

I just had my tax appointment last Friday.

I spend way to much time accounting expenses

My asset threshold is large, not as large as Mea's but large.

I try to take all expenses I can in a given year to offset income which can also be large.

I do have another business which can offset gains as well.

Find a good cpa and stick with them-thats my advice -its paid off well for me.

On the books I do not carry any inventory into next year

You can if you like to spend even more time counting and working toward nothing creative like making more pots.

The thing is taxes are just part of any business and thats what I keep saying as I'm writing quarterly checks to the IRS-just part of the any business I keep saying

just part of any--------

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I have always been unsure about the whole "tax" thing. Since retiring from art education in 2012 I started selling my pottery at a few art festivals and and a local gallery.  I am very small potatoes just taking in $6,000-$7,000 a year.  I have just used TurboTax and claimed my clay income and expenses as a "hobby".  Since clay does not keep a roof over my head I assummed it was a hobby rather than a part time business.... but can not find info that specifically supports this. What to other part timers do?

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Mark C.    1,807

Thanks for that Ron-I just read the nine factors that the IRS outlined why I cannot call my business a Hobby-I thought just for moment that the tax thing was not for me-but alas selling tons off pots come with paying tons of tax-

I was hoping that my mantra is (this comes with any business )could turn into hey its just a hobby-well seems there are 9 factors that keep me from that hobby factor.

 

Income & Expenses Question: How do you distinguish between a business and a hobby? Answer:

In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. No one factor alone is decisive. You must generally consider these factors to establish that an activity is a business engaged in making a profit:

  • Whether you carry on the activity in a businesslike manner.
  • Whether the time and effort you put into the activity indicate you intend to make it profitable.
  • Whether you depend on income from the activity for your livelihood.
  • Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
  • Whether you change your methods of operation in an attempt to improve profitability.
  • Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
  • Whether you were successful in making a profit in similar activities in the past.
  • Whether the activity makes a profit in some years and how much profit it makes.
  • Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
  •  

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GiselleNo5    464

I have always been unsure about the whole "tax" thing. Since retiring from art education in 2012 I started selling my pottery at a few art festivals and and a local gallery.  I am very small potatoes just taking in $6,000-$7,000 a year.  I have just used TurboTax and claimed my clay income and expenses as a "hobby".  Since clay does not keep a roof over my head I assummed it was a hobby rather than a part time business.... but can not find info that specifically supports this. What to other part timers do?

 

If you make over $400/year on it you are required to report the income. 

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Mark C.    1,807

I picked up my taxes from accountant today-looks like I made over the $400 limit .

Seems I owe one large sum before April 17th and a huge SEP contribution before April 17th as well as 4 large quarterly 2018 prepayments with one due-you guessed it April 17th.

I'm thinking next year about a hobby business in clay.

Just make what I like and plan on a loss

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GEP    863

Sure you will, Mark :-)

 

I managed a small refund for myself this year. I tried to lower my income by eliminating my wholesale business at the beginning of 2016. But at the end of the year, my gross sales were the same as the year before (had time to do more shows and try new shows, all but one was very profitable). So before the end of December I paid off some big booth fees that weren't due yet, and I made a bigger than normal SEP contribution. So now I have a refund, and some lower quarterly payments for this year. The best news is that my workload last year was comfortable. I had regular days off and never felt like I was playing catch up.

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RonSa    189

SEPs are a great idea but you should ask your accountant about SIMPLE IRAs. In some cases you may be able to make bigger yearly contributions. You can do one or the other, but not both in the same year.

 

Also, instead of making a single lump contribution (stocks are at a all time high right now) you should break it down to monthly or bi-monthly contributions to even out the prices you are paying for those funds. Start today for your 2017 contribution (which isn't due until 4/18/18).

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Mark C.    1,807

Having a Roth and Sep has been great for me. I like the prepaid nature of this later tax free income without IRA restrictions.

I have had a IRA and then switched out to a Roth since the middle 80's-Always made maximum contributions. It a nice feeling many decades later.Once the pile get bigger the compounding adds up.

As to high price stocks thats part of my tax issue as I also have them and am paying all that interest and taxable gains. Bought a Bunch of Apple long ago .

Once I start the hobby business and make what I want when I want to make it-the profit should be zero or less.

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RonSa    189
As to high price stocks thats part of my tax issue as I also have them and am paying all that interest and taxable gains

 

The point about high stock prices is this:  if you have $1000 to purchase shares do you want to pay $25 per share or $20 per share for the same fund? Typically, stocks are at their highest point during the time when everyone is trying to make their non-taxable contribution to their retirement fund which is just before tax time.

 

The idea is to get more bang from your buck so you have more unearned income (aka: more interest, taxable gains and dividends).

 

I digress, this place is about ceramics not investing. 

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Marcia Selsor    1,301

I got a refund mostly due to relocating my studio. The move was deductible. But rushing to catch up as Mea said. I also include writer income, royalties,  and teaching income,.

I have used the same CPA for 35+ years. She is a former student in Montana.

Marcia 

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Mark C.    1,807

I had biggest year in Ceramic sales but I knew this going in. I will not have another year like last year as I stopped doing my best show(twice a year) in 2017.I'm down to 5 shows this year and my own sale-plus some smaller wholesale and some consignment.

Looking forward to a bit less work in clay.

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Mark C.    1,807

Just wrapping up the tax season

Tax report from cpa is 57 pages long

14 federal forms and schedules

6 state of Cal. forms and schedules

thats for two persons filing jointly for two businesses and a rental

His fee was $565 which seems very fair considering I did not have to do it all.

Just sending out all the checks now and 2016 will be in the rear view mirror 

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