Lay your foundation – what are you going to sell.Here is a list (right off the top of my head), based on my own experience of things you need to think about and do BEFORE starting a handmade business: you depend on income from the business for your livelihood.that the time and effort you put into the business indicate you intend to make it profitable.you conduct yourself in a businesslike manner. cover any overhead involved in running the business, and.cover the cost of the materials you used to make the object.The determining factor from the standpoint of the IRS – you are a business if you are selling your finished object for a price that would : It doesn’t matter (initially) if your sales are slow. BUT you have to be really good about tracking income & expenses – and that means bookkeeping!Īgain, t alk to your CPA or tax preparer for more information. So if we go back to our quick example – it’s quite likely that you can deduct the entire $1,500.00 that you spent. įor most of us this will mean that in addition to filing our regular Form 1040 at the end of the year, we’ll be adding another form called a Schedule C – Profit or Loss From Business where we can legally deduct other expenses that are involved with running a business like the cost of patterns that we purchase, the cost of hosting a website, fees charged by PayPal, Etsy, Ravelry, etc., the cost of craft fair booths, business licenses, etc. shop and expect others to pay a fair market value for your finished object s, the IRS then considers you to be a handmade business – because you then intend to make a profit on the items you sell.Īnd that’s when EVERYTHING changes, and you need to step up your game. HINT: Talk to your CPA or tax preparer for more information.īUT, as soon as you open an Etsy, Facebook, Ravelry, etc. As a hobby – you can ONLY deduct $1,000.00 (because that’s the amount you can claim in sales) and you must itemize your deductions using Schedule A when you file your tax return. Let’s say you sold $1,000.00 worth of handcrafted items and spent $1,500.00 in materials, supplies and fees. On the flip side you can also deduct hobby expenses – BUT only up to the amount that you claim in sales AND you must itemize your deductions on your tax return. Now, even though the IRS doesn’t consider a hobby to be profitable, you are still EXPECTED to report any money that you do make from that occasional sale on your personal tax return (Form 1040) at the end of the year. Perhaps you sell your finished items for the cost of materials PLUS a couple of bucks for yourself.You give most of your finished items as gifts or perhaps donate them to charity.Knitting, crocheting, dying yarn, spinning yarn, quilting, sewing, making jewelry, designing knit or crochet patterns, glass blowing, catering, cupcake baking (and the list goes on and on ) are all considered to be a “hobby” by the IRS and isn’t profitable, and with good reason – the IRS doesn’t consider a hobby to be profitable because: In reality, it all boils down to one simple thing (from the view of the IRS) - your intention to make a profit from selling your handmade items! Just because you are currently selling handmade items doesn’t automatically mean you have a business. But be aware there IS a point when your “hobby” does become a business – at least as far as the IRS is concerned. Quite often handmade businesses are lovingly nurtured on the side ( for years ) while we continue to work for someone else and get a steady paycheck. Xx Is Selling Your Handmade Items a Hobby or a Business? Guest Post by The Yarny Bookkeeper The Yarny Bookkeeper| Facebook Page | Facebook Group | Twitter | Instagram | Pinterest | YouTube | G+ Her goal as The Yarny Bookkeeper is to take her own experience and turn it into a resource for fellow handmade business owners, so that amazingly creative people like you can handle their bookkeeping with confidence! Nancy Smyth is a yarn addict, a small business owner for 30+ years, a professional bookkeeper with an Associates Degree in Accounting, and a yarnpreneur with her own handmade business. I may receive compensation (at no added cost to you) if you make a purchase using these links. If you’ve ever thought about selling your handmade creations, you’ll want to read her guest post to find out how to figure out if you have a hobby or a business (and more importantly, how to make that distinction clear to the IRS!). I’m so excited to introduce Nancy Smyth from The Yarny Bookkeeper.
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