Etsy income is it a hobby or a business?

[steve s]

Looking at opening a Etsy account and during the research I got more confused on reporting income. I would like to keep it as a hobby but if I understand the tax situation is I have to report the income but starting in 2018 unable to deduct the expenses. Since it is a hobby I am not too concerned with my time but should be able to deduct wood and fees and postage shipping boxes etc. If I make it a business I can deduct expenses but also have to pay self employment taxes.
My goal is to cut down the number of carvings I have sitting around gathering dust. I do donate a few to different benefits and family and friends but have quite a few sitting around.
Would appreciate any advise on the hobby/business aspect of the income from an Etsy account.
Great site and appreciate all the knowledge available here. Thanks Steve

[Nebraska]

Steve,

There are probably folks here who can better answer your question. I’m thinking this is an accountant question, and guessing it depends on the amount of revenue you anticipate from your sales. I’d suspect an accountant can tell at what dollar amount it’s a business not a hobby.

[Claude]

It's been a while since I took an Income Tax class, but the rule used to be that you had to show a profit in 3 out of 5 years, or it's all a hobby. Hobby: You have to declare all income from sales of your carvings. You cannot deduct cost of tools, wood, shipping, or anything else. Business: You have to declare all income from sales of your carvings. You CAN deduct cost of tools, wood, shipping, etc. You can deduct the cost of training, such as attending the Renegade Rendezvous in Tennessee, including your food and lodging. You can deduct the mileage cost of driving your car to the P-ost Office to ship something. You can deduct the mileage cost of going to hobby store to buy paint/brushes, which are also deductible... It's all done on Schedule C. If you show a net profit after all your expenses are subtracted from your income, then you DO have to pay self-employment taxes on the net earnings. According to the 2019 Schedule SE, you multiple your net earnings from the business by 0.9235. If the amount is under $400, you don't owe any self-employment tax. If it's over $400, you multiply by 0.153 to figure your tax. One-half of the SE tax is deductible from your gross income on Schedule 1040, however... As a simple example, if you make $1,000 net earnings after expenses are deducted, your SE tax is $153, but half is deductible so you'd owe $76.50...
Note: I am NOT a tax attorney or CPA, so the advice is only my interpretation of the current law and could be incorrect.

I do operate my ETSY shop as a business, so I declare my net income (or loss) each year.
Claude

[steve s]

Appreciate the replies and some good information!

[VictorMet7]

You should definitely ask a professional or a more knowledgeable person in this domain. Because on the internet people have different opinions on this. For example, I think that it is profitable to sell on it, but it will become more than a hobby. I am still new to this; now, I am taking online marketing classes. My last subject was actually the cash flow importance in a company. That really got my interest, and I even found some good cash flow forecasting software (contact me for a link). I am surprised how many details are valuable for a company to live.

[Marymireles]

You should definitely ask a professional or a more knowledgeable person in this domain. Because on the internet people have different opinions on this. For example, I think that it is profitable to sell on it, but it will become more than a hobby. I am still new to this; now, I am taking online marketing classes. My last subject was actually the cash flow importance in a company. That really got my interest, and I even found some good cash flow forecasting software (contact me for a link). I am surprised how many details are valuable for a company to live.

Sorry for picking up the old thread, but now I have come across this problem and I agree, I would like to find out if maybe some good source has appeared where one can get information from, such as a law portal where one only posts information that has passed a check and corresponds to the truth.

[Kareemortiz]

I usually only use state websites, but if I have any doubts about income or taxes, I ask my friend, who is a lawyer. He can tell me very clearly what is allowed and what is not. I recommend to all who are not sure about the law to consult with someone who works in the system to avoid possible problems with the law.

[Kareemortiz]

I usually only use state websites, but if I have any doubts about income or taxes, I ask my friend, who is a lawyer. He can tell me very clearly what is allowed and what is not. I recommend to all who are not sure about the law to consult with someone who works in the system to avoid possible problems with the law.

But I have to say that I often had cases when I didn't succeed because of this so be careful.

[Josephmurrell]

I usually only use state websites, but if I have any doubts about income or taxes, I ask my friend, who is a lawyer. He can tell me very clearly what is allowed and what is not. I recommend to all who are not sure about the law to consult with someone who works in the system to avoid possible problems with the law.

Lol, I thought only I do that. Yes, this is the best tactic if you want to have the best quality information. Besides that, I can add that you have to have some sources that you know are definitely fake to tell the difference between what a fake looks like and what something straight looks like. Besides that, I prefer to use services like https://fitmymoney.com/apps-like-brigit/, which helps me with finance in the sense that it gives me a specialist in the field and has apps like Brigit which also helps me a lot with offering credit for business support.

[Claude]

Here's the word in it from the IRS: https://www.irs.gov/newsroom/hobby-o...tips-to-decide Key item, hobby expenses are only allowed if filing a Schedule A; If you file standard deduction hobby expenses are not allowed. You must declare income from hobbies all the time. If you are running a business, your intent must be to make a profit. See Publication 535 for more info.

I've been operating mine as a business for more than 10 years. I file Schedule C for my business income/deductions. I believe I showed a profit in all but one year, and that year I started amortizing a couple of pieces of major equipment, so that gave me an operating loss for that year, which was deducted from ordinary income.

Claude

[truthprosip]

I think any of your hobbies should not be a column in the tax report. Nevertheless, I recommend being very attentive to this. Although for example, my passion for investments later became my profession. After two years of this hobby, I found an article about bank investments and decided to try my hand at it. If you are interested in what I'm talking about, you can see this here, and maybe it will be just as relevant for you. It is not profitable to create your own business now, but working for someone else's business as a qualified specialist is profitable.

[Orion123]

I was in the same boat when I started my own Etsy shop a few years ago.

[dogcatcher]

All income is taxable unless specifically exempted in the federal tax codes. Is it a hobby or business is a different issue. If a hobby the income goes as misc on the 1040, and certain expenses on the schedule A. Business? Income and expenses on schedule C.

The above us a generalization
As already noted, seek qualified and competent help. It does not matter who helps you, you are the ultimate person responsible for your tax return.

[Orion123]

I was in the same boat when I started my own Etsy shop a few years ago.

It's true that if you're just doing it as a hobby, you still have to report the income, but you won't be able to deduct expenses. However, if you decide to make it a business, you'll be able to deduct those expenses, but you'll have to pay self-employment taxes. It's a tough decision to make, but I found that working with a professional advisor merger support team really helped me make the best decision for my business. They were able to guide me through the ins and outs of the tax situation, and now my shop is thriving.