Hobby Income

I'm 99.9% sure that IRS doesn't care what you call it, if you make money, they want their cut. When I started my business a few years ago I had to tell the tax man how much I thought I might make that year BEFORE they'd grant me a tax #. I told them $500 having no idea. They then granted me my resale number. Call your local tax people rather than rely on any of us on the list. We won't stand up in a court of law. :-)

As a small (non-pottery) business owner, I've had to learn a lot about tax rules. It seems that the thing the IRS is most concerned about is the opposite of your situation: People who have hobbies that they declare as businesses, and thus write off hobby expenses as business expenses.

If you are declaring income and not making any business deductions, the IRS should be ecstatic.

But it seems to me that you *should* operate as a business, and declare expenses to reduce taxes. It's no big deal, since you will be a "sole proprietor" which means your business income just gets folded into your regular income for taxing (unlike corporations, etc). You fill out a Schedule C with your income and expenses, and the balance goes onto your 1040 as "business income".

One nice deduction is called "expensing", in which you can write off expenditures like a new kiln entirely in the year of purchase, without having to depreciate over its lifetime. You can apply this to books and other things as well. You declare it on Form 4562 Depreciation and Amortization, but you don't have to mess with those things.

If you always make a taxable profit, the IRS will undoubtedly never squawk; after all, this is income that they otherwise wouldn't even know about. But if you have a lot of loss years, they may get upset, and think you are really operating a hobby scam. The acid test is if you make a profit in 3 out ot 5 years, in which case you are automatically legit. Otherwise, you may have to be able to demonstrate that you had a reasonable expectation of making a profit.

One main issue the IRS scrutinizes is the "home office" deduction, which in your case would presumably be for your studio space as a fraction of your home. This allows you to deduct that fraction of home operating expenses (gas, electric, etc) attributable to the office, as well as depreciation as an asset. You are not required to declare a home office just because you are a business, but if it fits, may as well take advantage of it.

Only you can decide if the deductions are worth your time in learning about how to claim them. On $2000 income, I suspect they would be.

Bob Masta dqatechATdaqartaDOTcom D A Q A R T A Data AcQuisition And Real-Time Analysis Shareware from Interstellar Research

Hi. I just pulled that number out of the air as a possibility for hobby income. I am still in the process of restablishing my home studio. Back in 92-95, I ran the pottery as a business, but I don't want that hassle if there is any way I can just declare hobby income. Here in Virginia the tax on tools and equipment can really eat up profits if you run as a business, not a hobby. :)

Hi, from Australia, Question- can you set up in the US a studio and kiln with all the gear at a place of residence, like in a residential area, produce your wares and then sell them????

Sam

my understanding is yes. but i'm in california and laws that regulate whether you can do business-at-home studio would not likely be a federal ones that apply uniformly to all states, but rather would depend on which state you're in. but i'd have to guess that there aren't any/many states that prohibit it outright. the hurdles are going to be things like: does the local government "zone" your neighborhood as prohibiting commercial (usually on applying to on-site retail) ventures? does the equipment (such as the kiln) violate local safety ordinances? blah blah blah.

the short answer is: people do it all the time!

in USA home based businesses are regulated by the cities. some cities allow them, others don't. many set up road blocks that hamper becoming completely leagal. some cities set fees low so that everyone can declare their business. others set high fees thinking this is a good source of revenue for the city.

i live in california, and in Long Beach (near los angeles) they require a fire inspection of all home based businesses. most home based people shy away from being "leagal" due to the various findings these inspections can raise & require corrected before getting a business license. obviously having a kiln may raise issues from people who don't really know or understand kilns. i know several potters in long beach who are living off their pottery & are not "leagal" in the city - no business license.

some cities have small fees - like mine in claremont (or my old town lakewood) of only $50 per year. some cities (like long beach or westminster california) set fees near $300 and may require approval of potentually affected neighbors. a nasty neighbor may simply say "no".

for me i like the idea of being leagal and checked with my city on rules before moving here. setting up a home based business off the radar screen of the city may backfire on you if you ever had an accident - like a fire from your kiln. your homeowner insurance may not cover such an accident.

steve

steve graber

snipped-for-privacy@aol.com (Nine Tiger) wrote in news: snipped-for-privacy@mb-m29.aol.com:

I am in Auckland New Zealand.

First od all in New Zealand, businesses are not registered. As long as the business complies with the district plan in which ever part of the country it is in you can get premises, set up, open the doors and have a

We always feel we are over regulated but from what I have read here so far most of you have us beaten.

In the Auckland District scheme, in residential zoned areas, there is a provision of a home occupation. As long as you comply with the regulations (including noise, smells, hours of business, parking) you dont even have to notify the council, also as long as it complies the neighbours are unable to object. It is as of right.

The only time you would ned to apply to the council would be if you needed to comply with health and food regulations and needed aterations and council certificate.

A home occupation allows you to use up to 40% of the house for the business. The owner must live on the premises and can employ one other person. You can not run a shop from home but there is a special provision which allows the sale of 'craft and produce' direct from the premises as long as it is manufactured or grown there.

You are also allowed one small sign advertising the business.

I actually run my real estate business from home and I have my pottery studio set up under the house. I had my kiln wired in by a registered electrician so that it all complies with electrical and fire regulations. A certificate of compliance has been issued. You are also able to have a gas kiln.

A little bit harder to get away with a wood fired kiln in a residential area. In actual fact what annoys neighbours most about outside kilns is the noise factor, particularly if you are using a forced draught.

One of the potters who I am doing my diploma with comes from Germany. Talk about regulation and closed shop.. She tells me youcan't set up in business ot sell pottery unless you have completed an apprenticeship and education course to the satisfaction of the guild.

Regards to all

JW

Good Info, Uncle John

Just a comment on your business failure rate in NZ compared to US. In US, 93% of new start-up businesses fail in the first year and of the 7% that make it to the 2nd year, 93% of them fail. Your NZ rate seems quite a bit better

From what I have seen and experienced, failure is mostly due to extreme naivete regarding business set up, licensing, and tax laws. Moral of the story: Before you start a business, DO YOUR HOMEWORK! Find out what it costs to run your business (heat, light, water, power tools,kilns, etc.), investigate local licensing requirements and cost, check with your insurance carrier about restrictions on fire insurance, get liability insurance for the business, find out about personal property taxes in your area (most businesses must pay personal property tax on fixed assets in US), check on your state's sales tax regs (do you need a seller's permit aka: resale license?), local signage regulations. Sources of information (in US at least) are city or town licensing offices, county tax offices, utility companies, insurance companies, people in successful business, Better Business Bureau, Small Business groups on Web, etc. In CA seller's permits are issued by the Franchise Tax Bureau. Don't know about other states.

Jan C.

Your last paragraph strikes the nail on the head, in todays sub-culture of the young, unless it's got "Billabong"(Australia) or the equivalent its 'not cool'. Value is not placed on how well an item is made, its wether its got the right 'logo' attatched. I have been in 2 full time business operations that I have started and owned, both lasting for about 4 years each, did not go broke but sold them because the work load was not equal to the money it put in my pocket. Am now a hobby potter going to college studying ceramics at 46 years of age. I have 2 gas kilns, pug mill, 2 wheels, chemicals, extruder etc and there's no way I would be brave enough to head out into the big world and go full time potting.

Sam

Yes, Uncle John, it IS a worldwide problem. We have been discussing just that very topic in the Clayart group. Without rehashing the whole thing, the gist of the argument seems to be just what you nailed...that the young are not being taught proper appreciation of handcraft, AND the value of working for what you want.

They, and to some extent we, grew up in a culture that allowed (and even encouraged) "mass" production (so everyone could have whatever it is being produced.) Convenience in availability is like an addictive drug. Instant gratification, and all that. No thought to leaving it to the generations that come after. No thought to "uniqueness", except possibly in furniture, and then only among the more affluent who can afford to choose "what they like", rather than "what serves the purpose." With parents willing to give them anything they want, they certainly have NO CLUE wht it means to actually have to work and SAVE for anything. Just charge it to Daddy's card! And that's the parent's fault....US!

Now tell me how to fix that in THIS generation (Gen X and Y), and you will no doubt be elevated to "God" status by all the craftspersons out there. Hell, I'll even build you a stoneware or porcelain pedestal myself! I would suggest a throne, but a porcelain throne has altogether different connotations :>)

By the way, can you tell me in 200 words or less how to open a successful business that will have people banging down the door without my putting in any effort at all, or actually having to WORK for it . I'm sure all those "instant gratification" types out there would LOVE to hear it :>)

Best Wayne in Key West

Maybe "product placement" in some hip movie or music video. The youth culture is driven by emulation. If they see the cool stars displaying an appreciation for something, they'll try it too. Works for tobacco and alcohol!

Bob Masta dqatechATdaqartaDOTcom D A Q A R T A Data AcQuisition And Real-Time Analysis Shareware from Interstellar Research