tax question

[cris]

So, I'm going to start selling a pattern on ravelry and etsy (same pattern, same price). If it goes well, I'll most likely do a few more.

 

So .... hypothetically, if I make less than a set threshhold its considerd hobby income, but what if I go over that threshhold? I am not licensed as my own business... so what do I do? Will ravelry/etsy send me the appropriate income statements for my taxes? Will I have to get licensed as a business?

 

It's not that I'm complaining - I'd love to be 100% funded by crochet LOL however, reality is there is more of a likelihood someone makes a little more than threshhold for hobby income - what do they do if they inch over that line?

[RoseRed]

I totally suggest taking Amy's 'Do I want to start a crochet business?' class. It covers all of this, where to find the info you need AND a bunch of stuff that people just don't think of.

 

A lot of it is going to depend on what state you live in. Hobby income tops off at (I think) $400 but you cannot take expenses off of it. If you sell $500 in patterns and purchase $400 in supplies and yarn you still have to claim all of the $500.

 

The hobby income question is a matter of your federal income tax return. You can go all out and do it for real. You have several years of not making a profit while still getting the business tax benefits.

 

Business licenses are issued by the county that you live in. Some counties make you pay for a license for the right to own and work your own business. Some counties make you get a license for working out of your house.

 

If you want to name your Etsy or Ravelry shop then you need a DBA - doing business as license. That comes from the state.

 

You also need to know if you're required to collect sales tax on anything you sell, digital or tangible goods and you need to register with the state for that certificate.

 

If you live in a 'community' you may not be able to work from home depending on the homeowner's association rules.

 

Most people don't know any of this and start out just by simply putting the patterns up and seeing where it goes.

 

No - neither etsy or rav will send you statements. You need to keep that info yourself. You'll also need to set up a business account with paypal (totally go for the micro payments). With paypal you can print out a monthly statement.

 

If you want to have a business bank account you'll need to have your DBA to open it.

 

There's a lot to doing it the right way.

[cris]

That is what I was thinking (a lot going on if you want to do it *for real*) - right now, I just want to put a pattern up and just let it sit and make me yarn money (if it even does that... note: I'm pessimistic about the whole thing LOL). I just don't want to be left in a scramble.

 

I think the biggest answer is that I have to keep records of my sales. I think I already have a business account on paypal so I'm good to go there.

 

I will definitely be referencing this post for things as they come up. Such as - if I put the pattern up and make 50$ in the first week (uh, again,.. not gonna happen) then I at least know what direction I had better start looking in to ensure my hind end is covered by the time the hobby income limit hits.

 

Thanks again, Rose - great advise.

 

(and yes, I'm considering taking the class... perhaps if my pattern sells enough to cover the fee I'll do that LOL)

[RoseRed]

It's only $10 and worth every penny.