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Starting up questions - Page 2  

post #16 of 26
Quote:
Originally Posted by PumpkinTart View Post
 

The IRS doesn't base the distinction of whether you are a business on the level of activity or a certain income threshold.  They look at your intent.  If you intend to make a profit, then it's a business; if you don't intend to make a profit, it's a hobby.  Regardless, you have to report all of your income.  It is actually in your best interest to file a Schedule C and claim your business income because you can write off your expenses.  A hobbyist typically cannot deduct expenses, unless they file Schedule A, and even then you lose the first 2%.

 

The presumption of a profit motive (i.e. your intent) comes into play if you file your taxes for several years and always claim losses and use these losses to offset your other taxable income.  For example, if you "lose" $10,000 a year for three years straight and use these losses to offset the wages you earn as an employee, thereby lowering your taxable income, the IRS can audit you and disallow these losses.  The theory is that a reasonable person would not continue to do something as a business that was losing money every year.  In this case, they would consider you a hobbyist and disallow ALL of your expenses or limit them to the amount you can claim on your Schedule A.  Since a majority of taxpayers don't itemize their deductions on Schedule A, the impact of being ruled a hobbyist means the IRS will tax you on 100% of your cake income--NOT your profit, your gross income.  Ouch!

 

how the irs operates is not my point of reference--i am actually referencing the previous misbelief on this forum that if one were to accept money for doing a cake then that alone makes you a business that you are no longer a hobby caker--and the irs doesn't agree with that--

 

all the irs bladeebla is not my point at all--not my thing--

 

that the irs allows wiggle room for hobbyists to accept money and not be a business is my point--just that small, simple and pointed--a little parenthetical--whether it is best or safe or deductible --not my point---and there are local ordinances to have to comply with as well--but one can accept money for a hobby and not be a business according to the irs--

 

then beyond that there's more to the story of how to be in good standing with all the authorities of which they are legion but i'm not questioning any of that--

 

one can be a hobbyist and accept money for your products


Edited by -K8memphis - 11/9/13 at 4:16pm
one baker's never ever do is the next baker's 'i swear by this'
one baker's never ever do is the next baker's 'i swear by this'
post #17 of 26
The IRS says you can be a hobbyist and accept money for your hobby, but the IRS does not govern local health departments, or city ordinances, or HOAs, so while your business can be a hobby in the eyes of the IRS, they do not speak for everyone.
elsewhere.
elsewhere.
post #18 of 26
Quote:
Originally Posted by kikiandkyle View Post

The IRS says you can be a hobbyist and accept money for your hobby, but the IRS does not govern local health departments, or city ordinances, or HOAs, so while your business can be a hobby in the eyes of the IRS, they do not speak for everyone.

that's true and i said that in each of my posts

one baker's never ever do is the next baker's 'i swear by this'
one baker's never ever do is the next baker's 'i swear by this'
post #19 of 26

I'm a total hobbyist but I have still earned a decent amount of money doing cakes.  I will be doing a schedule C, I think this is important even if you only bake a few cakes each year.  It's the honest thing to do.  Thank goodness my husband is in finance, he has given me a tremendous amount of direction and will help with the appropriate deductions.

 

Even though I say it's the honest thing to do, I won't pass judgement on those who take cash here and there from friends and family because it's friends and family.:-D

post #20 of 26
Quote:
Originally Posted by -K8memphis View Post

that the irs allows wiggle room for hobbyists to accept money and not be a business is my point--just that small, simple and pointed--a little parenthetical--whether it is best or safe or deductible --not my point---and there are local ordinances to have to comply with as well--but one can accept money for a hobby and not be a business according to the irs--

It's not really about the IRS "allowing" anything...all income must be reported in one form or another, whether the income comes from a business, a hobby, or selling illegal drugs (hence the "income from illegal activites" line on the 1040).

Having your income treated as coming from a hobby instead of a business from the perspective of the IRS is entirely disadvantageous to you and is certainly nothing to aspire to. The ideal situation for a hobbyist would be to limit the scope of your sales (no advertising, no FB page offering products for sale, no web site, no accepting orders from the general public) so as to be treated as a hobbyist by the health dept, but hit enough of the points in the hobby vs. business link above to be treated as a business by the IRS. The exception is if you already have 2% AGI in misc. itemized deductions from sources other than hobby expenses, in which case the negative impact of being classified as a hobby would be minimal.
post #21 of 26
Quote:
Originally Posted by -K8memphis View Post
 

 

how the irs operates is not my point of reference--i am actually referencing the previous misbelief on this forum that if one were to accept money for doing a cake then that alone makes you a business that you are no longer a hobby caker--and the irs doesn't agree with that--

 

all the irs bladeebla is not my point at all--not my thing--

 

that the irs allows wiggle room for hobbyists to accept money and not be a business is my point--just that small, simple and pointed--a little parenthetical--whether it is best or safe or deductible --not my point---and there are local ordinances to have to comply with as well--but one can accept money for a hobby and not be a business according to the irs--

 

then beyond that there's more to the story of how to be in good standing with all the authorities of which they are legion but i'm not questioning any of that--

 

one can be a hobbyist and accept money for your products

Call it what you want, the point to take away from this thread is: whether you are a hobby or business, you STILL have to report sales to the IRS and you STILL need to be in compliance with all local requirements and laws to accept money for the sale of goods. I think this could be very confusing for newbies reading this thread who might be thinking they can claim they are hobbyist to get around local regulations or accountability while still being able to charge money for selling cakes. 

Let's eat grandma. Let's eat, grandma. Punctuation saves lives.
Let's eat grandma. Let's eat, grandma. Punctuation saves lives.
post #22 of 26
Quote:
Originally Posted by sixinarow View Post
 

Call it what you want, the point to take away from this thread is: whether you are a hobby or business, you STILL have to report sales to the IRS and you STILL need to be in compliance with all local requirements and laws to accept money for the sale of goods. I think this could be very confusing for newbies reading this thread who might be thinking they can claim they are hobbyist to get around local regulations or accountability while still being able to charge money for selling cakes. 

 

People like to rationalize their behavior. It's quite unfortunate that threads like this make CC appear to be complicit.

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post #23 of 26

there are many agencies to contact and comply with to do it right--if it is even possible in each individual area--and if all the conditions are met hobbyists can sell cakes without being classified as a business--

 

this is in regard as i stated to the previous rigorously held error when some of us would say that one sale of anything means you are a business--hoot and holler but one or two sales does not a business make--i still see it occasionally--

 

this is a very narrow distinction that i am making in regard to the previous egregiously erroneous definition of a business--maybe some of you were not here then--tack on all the 'what ifs' and 'oh nos' you can think of but but selling food sporadically is not by any means the birth or definition of a business --

 

of course there's a right way and a wrong way to do it--

one baker's never ever do is the next baker's 'i swear by this'
one baker's never ever do is the next baker's 'i swear by this'
post #24 of 26
Quote:
Originally Posted by sixinarow View Post
 

... I think this could be very confusing for newbies reading this thread who might be thinking they can claim they are hobbyist to get around local regulations or accountability while still being able to charge money for selling cakes. 

 

if there are newbies who think that from reading this thread then they did not read it--even the quote i posted from the irs talks about reporting non-business income--many many posts give all the information--hobbyists have obligations too--they are just not businesses

 

the op SAYS she's a hobbyist who want to DO IT RIGHT--what are you reading into this? how could anyone arrive at this conclusion of yours from the information in this thread?

 

tiffany0727, a couple questions for you, please--

 

from the thoughtful reading of this thread do you think you can sell cakes without contacting local agencies first? (this is a really obvious question and i apologize for asking because you started the thread saying you want to do this right--but the question has come up that the thread is confusing--are you confused?)

 

is there any information in here that has now led you to believe that you can sell cakes without reporting the income to the irs?

one baker's never ever do is the next baker's 'i swear by this'
one baker's never ever do is the next baker's 'i swear by this'
post #25 of 26

in 24 posts i counted up about 12 times that 'contacting local agencies/health department' has been advised and the proper irs reporting has been mentioned about 14 times--several in depth explanations--that 's fully sufficient to get those points across to anyone who really reads them--

one baker's never ever do is the next baker's 'i swear by this'
one baker's never ever do is the next baker's 'i swear by this'
post #26 of 26

Cake Central would like to advise the OP and anyone reading that members here are not CPAs, attorneys, nor do they work for any government agency.  They are not qualified to advise you about IRS rules or laws in your area.  They are random people on the internet.  Please seek in-person council from your local Health Department or County/Municipal/State Business office as to rules and regulations in your area and contact a licensed CPA about how you report income from any sales.

 

This thread has run it's course.  Thank you for your participation.

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