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Hi

I've searched a bit on this forum and not found an answer to my question, so maybe someone can help me, please.

I am a "Hobby" potter, but last year I sold about $2500.00 (gross) of my own pottery on Etsy.

I am 71 years old, a retired graphic artist and drawing social security. My husband still works.

Am I, at some point, required to be a business and pay taxes as a business and all that involves? So far, I have not included any Etsy sales as income on my taxes.

Any information would be really appreciated. I am totally ignorant about business things, I am just having fun with clay, but don't want to get in trouble with the IRS!

Thank you

Dianne

Edited by dricherson
clarity

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First of all, congrats on making $2500 in pottery sales last year! And yes you have to pay taxes for the income. For IRS purposes, you don’t need to register as a business, you can file as a sole proprietor, which means the pottery income will be part of your personal tax return. Use a Schedule C to report all of your income and expenses from the pottery. If your records are simple enough, you can use a Schedule C-EZ. 

You said your sales were on Etsy, did you make any sales within your own state? Then you also need to collect and file sales tax for your own state. Put this on your to-do list for 2020: get a sales tax license. Depending on your state, you may need to register as a business entity within your state in order to get a sales tax license. But this is separate from the IRS and income taxes. 

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Yes, if you're accepting payments, the payment processor is required to report your income to the IRS for anything over 20,000 and 200 transactions.

As far as reporting sales on your income, yes, you are supposed to do that as well.  Even bartered services are supposed to be reported at the cash value of the service/goods.

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At some point it'll make a lot more sense to become a business since all your supplies, equipment, studio, show fees, etc become tax deductible.

I formed my pottery business last year and because of the initial costs of equipment and weak sales I didn't owe anything extra.

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42 minutes ago, liambesaw said:

become a business since all your supplies, equipment, studio, show fees, etc become tax deductible.

Not sure if you’re talking about forming an LLC or a corporation, essentially a separate tax entity from yourself. This isn’t necessary in order to deduct all of the expenses of a small pottery business. This can be done by simply adding a Schedule C (or a Schedule C-EZ) to your personal tax return. 

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2 minutes ago, GEP said:

Not sure if you’re talking about forming an LLC or a corporation, essentially a separate tax entity from yourself. This isn’t necessary in order to deduct all of the expenses of a small pottery business. This can be done by simply adding a Schedule C (or a Schedule C-EZ) to your personal tax return. 

Sole proprietorship, which needs to be licensed here in Washington

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All states seem to have their own spin on things.  In Colorado it is a misdemeanor to sell any sort of retail without a sales tax or special event license.  So do get on your state Dept. of Revenue site and find out the rules for you.  Mea and I aren't talking about forming an LLC, although you can if you wish, but  just registering under your name and Soc.#.  If you are selling through Etsy (Congrats by the way) I would think there will be a paper trail of some sort.  Might as well be on the up and up.

Roberta

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16 hours ago, dricherson said:

Hi

I've searched a bit on this forum and not found an answer to my question, so maybe someone can help me, please.

I am a "Hobby" potter, but last year I sold about $2500.00 (gross) of my own pottery on Etsy.

I am 71 years old, a retired graphic artist and drawing social security. My husband still works.

Am I, at some point, required to be a business and pay taxes as a business and all that involves? So far, I have not included any Etsy sales as income on my taxes.

Any information would be really appreciated. I am totally ignorant about business things, I am just having fun with clay, but don't want to get in trouble with the IRS!

Thank you

Dianne

sounds like you've been doing it off the books for a while. I would go find an accountant to help me sort it out if last year is not your first year in business. If you get lucky and draw an audit then it would be a mess and you could get hit with penalties. I think anything over $400 is supposed to be reported. There are hobby business classifications where you cannot take losses for more than revenue and since you are selling on Etsy you are in my opinion more at risk than if you were selling face to face so liability insurance (few hundred bucks a year) and business structure might matter. You can form a single (or couple) person LLC and choose cash basis for the IRS and file the same as a sole proprietor. None of this stuff is expensive or that involved but you need to get on top of it and they do care, Audits are mostly random but a real hassle and can get expensive with them plugging in estimated income that you never even made.

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In a perfect world the answer is yes you are a business . If this was a one off you may view it as a like a yard sale but since it sounds like the Etsy gig will continue you should check with your state (you did not tell us what state you are in)-collect state sales taxes and report the income on your return .Getting legitimate is a good thing. If you sold this pottety for cash as the farmers market my advice would be different. Your sales venue is all above board so you should be as well.

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Thanks to you all for your good advice! I really only wanted to make enough money to support my habit (pottery) :-)
I will begin reporting my profits and ask our accountant for advice, too. For some reason I thought, at my age (71), the rules were different.
I appreciate your experience and wisdom!

 

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there is a group of AARP  volunteer accountant retirees who do taxes for seniors in many places.   they have done my schedule C for me for many years.  they do not do state taxes here but i do not know what they might do in alabama.

try to find if this service is available to you.  free is really good.

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On 1/23/2020 at 6:22 AM, dricherson said:

Thanks to you all for your good advice! I really only wanted to make enough money to support my habit (pottery) :-)
I will begin reporting my profits and ask our accountant for advice, too. For some reason I thought, at my age (71), the rules were different.
I appreciate your experience and wisdom!

 

I hear ya, it really dose seem like they tax everything to the extreme. If you want to just sell to offset cost then a hobby business classification may work well. Here's the IRS page on this:

https://www.irs.gov/newsroom/hobby-or-business-irs-offers-tips-to-decide

Hey enjoy and even if you have to do a little lite business bookkeeping its not too much hassle at tax time and a few grand in revenue against the cost isn't going to have a big impact on taxes so don't let this stuff cause negative feeling about an otherwise fun side hustle!

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If you want to just sell to offset cost then a hobby business classification may work well)

its to late for that for me but many can go this route-

yes why its just a hobby business-I may run it by my account in a few weeks before the quarterlies come due.

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8 hours ago, Mark C. said:

If you want to just sell to offset cost then a hobby business classification may work well)

its to late for that for me but many can go this route-

yes why its just a hobby business-I may run it by my account in a few weeks before the quarterlies come due.

Ha ha, I think your side hustle is a little beyond the limits.

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I looked up that IRS Link to a hobby and  my gosh all the check offs applied to me so I guess I'm not going to be able to say I'm a hobbist. You know I started off just making pots for fun and it  just got away from me.

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