The issue of taxes.

[Upon Infinity]

So, I'm convinced some of you are in the same boat as me.  In fact, I'm convinced Planetside was in the same boat as me for a few years at their start.  Many of us are working artists.  So, I'm curious as to how some of you structure your income / expenses / taxes around this.  Do you consider this 'hobby income" and not report sales (if any)?  Do you legitimately claim your income and expenses (like software, computers and any other related equipment).

My problem is I'm a couple of years behind on my taxes (filing, not paying), I do somewhat steady sales on Zazzle, however, a lot of software and other expenses have meant I technically have a loss for those years.  And I only do this part-time, and I understand that the government can declare a business like this to be just a hobby under these circumstances.  Has anyone else had similar issues and how have they dealt with it?

[Dune]

I think that's very different per country. I have a legitimate full-time one-person business, so I have to charge BTW (Dutch VAT), and can deduct all expenses related to my work. I need to have a certain income to have that sort of business, and spend enough time in it, and have different commissioning parties. Or it would probably be regarded as a hobby, and I would fall in another (tax) category.

[kaedorg]

As I'm a bookshop owner, and declared as shopkeeper, all my activities must be declared.
So my TG3 works are sold through my bookshop, but I also can deduct any expenses as computers,
tg3 software, xfrog bundles and also making costs (as a recent bookmarks project).

[TheBadger]

I understand that the government can declare a business like this to be just a hobby under these circumstances.

Meaning what? Can you provide a source on this info? I would like to know more about the idea.

Thanks.

[Upon Infinity]

I understand that the government can declare a business like this to be just a hobby under these circumstances.

Meaning what? Can you provide a source on this info? I would like to know more about the idea.

Thanks.

From what I understand it's not the desirable route.  As Dune said, you are put into a different category, and are likely not allowed to do certain deductions, or as many deductions.  Meaning they wouldn't allow most of my expenses to be deducted as expenses, but I'd likely still get taxed on the income.  I'm an artist, though.  Bookkeeping and tax laws are not my specialty.  I'm just trying to ascertain what my options are, and what my best approach should be.  I'll be sorting it all out this weekend and taking it down to a preparer.  I was really curious to know if anyone has similar issues.

As for source, CNN posted this article today: http://money.cnn.com/gallery/pf/taxes/2014/03/14/tax-audit/index.html?hpt=hp_t2  It's number 9 on that list.  You can also Google search it.

[zaxxon]

Giving Tax advice is a tricky subject. As a former VP of Bank of America (no I was not a running dog lackey of the capitalist imperialist fascist warmongers...)  I was schooled to refer any questions to a "qualified tax preparer" so by all means talk to someone with expertise. But, as a full-time and later part-time artist I regularly filed a US Federal itemized return with a schedule 'C' form as a self employed person. All expenses; supplies, travel, studio space, entertainment, etc were deducted from all combined income. Ask your CPA for which way the wind is currently blowing with the Feds and your State of residence regarding how many years with a loss you can get away with (well, as an artist they really don't expect you're going to make much, but they don't like tax 'dodges' either). There are some 'pitfalls' so heed the advice given, but most artists from my experience had little problems with the IRS for their schedule 'C' expenses.  Good luck!

[PabloMack]

I understand that the government can declare a business like this to be just a hobby under these circumstances.

Meaning what? Can you provide a source on this info? I would like to know more about the idea.

I got audited by the United State IRS for this very same thing many years ago. It is important for you to always report a profit and pay taxes on this income. This will keep the IRS happy. If you report a loss for three years in a row, they will deactivate your Employer ID Number and you will no longer be a legitamate business in the eyes of the IRS. The IRS will audit you and dig into your records and make you pay back what you owe plus interest. It is good practice to deduct costs only if they were incurred on a project for which you were directly paid (more than the cost) as a contractor or a business. Otherwise, you need to swallow the cost yourself. An employee paycheck can't be counted as business income. State sales tax is another animal altogether.

[AP]

Would this be a self-employment tax? I know you have to make a certain amount until you are forced to file but I do not recall how much.

[PabloMack]

Would this be a self-employment tax? I know you have to make a certain amount until you are forced to file but I do not recall how much.

No. If you pay yourself a salary then it is treated as though you were any one of your employees. In Texas, there is also an unemployment insurance tax that you have to purchase for your employees. Your side-business income usually just appears on your personal IRS filing if you do not have a corporation. But even S-Corp income eventually ends up on your personal income form after you have gone through the additional schedule that is necessary for this purpose. So it is not a separate tax. But even if you only made one dollar from your business, you still are supposed to report it along with all of your other income when you file to the IRS. The only time you are exempt from filing is if your total income is less than a certain amount. That is not your business's income. That is your total personal income. Say you get a salary from your day job and you made one extra dollar from your side business. You are still supposed to report it because it goes into your total income which is what is being taxed. It all ends up as personal income tax. It is much more complicated for C-Corporations. They actually get double-taxation; once as a corporation and a second time on the personal incomes of its share-holders. State corporate franchise tax is also another tax on your corporation (even an S-Corp). In Texas that doesn't kick in unless your total business income is $150K or more. You do not have to file for that if you had less than $100 in your business's income that year. There is something like a $75 penalty for late filing. State sales tax is another tax you are liable for if you sell your services and products. Luckily, the state of Texas doesn't collect an income tax.

Look into your own state's laws because they may be different from those in Texas.