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When is a Hobby a Business?

by ShadowedOdyssey, Window Shopper

  • Created: February 18, 2009, 10:24 am
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10 comments

When is a Hobby a Business, and Do I need to get a licence for my Hobby to sell at fairs?

Also, Do I need to charge sales tax for my hobby, or is this when it becomes a business?

I don't plan on selling all the time, just every so often.

Is there a dollar amount per year that makes it a business?

Im very confused when searching for info on this matter. And I know the gov wants their share if its a 'Hobby Business'.

I dont plan on living off my expenses.

And any profit(if any) will go be for more crafts. 

I dont plan on using my hobby for deductions.

 

And who in my state can I go to, to ask these questions? (I know there are probably seperate state and local stuff I may need to abide by) 

I live in Austin TX area.

 

Tags: Discuss Popular Topics, Starting & Registering a Business
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victor79 | Window Shopper | 10/25/2010 - 5:26 am

Any other fees? ---This post was edited to remove a commercial link. Read our discussion policies for more Community best practices.

TomL | Creator | 5/4/2009 - 12:07 am

The answer to your question is in the this pdf at this site: www.window.state.tx.us/taxinfo/taxpubs/tx94_105.pdf   Here's a excerpt from the pdf:   Temporary Places of Business A temporary place of business' is a location that isestablished for the purpose of receiving orders and makingsales for a limited period of time. For example, abooth at a craft fair or art show is a temporary place ofbusiness. When a seller operates a temporary place ofbusiness, local sales taxes must be collected for the taxingjurisdictions in effect at that location on all taxableitems transferred to customers at the time of the sale.
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webdesign_seo | Performer | 5/19/2009 - 10:29 am

Hi Shadow, once you're finished with all the neccessary business documents that you need when you're establishing a small business, you should seriously consider selling online.   It's great to go out to the fairs and stand there waiting for your customers, but wouldn't it be nicer if you turn your hobby into a business and the customers are coming to you?   If you have a website that is built properly and you have a good online marketing plan... you can succeed with your business.  The problem with alot of so-called web designers is that they use simple designs that you can buy off the shelf that don't adhere to business strategy.  Yes... you need strategy when you're selling something online.  It's not as easy as putting up a website and someone buying it from you.  It's about convincing and making the user feel comfortable, not to mention easy to use for them to buy from you.  Then again, the real question is how will your customers find you?  How do you find something... that's right with Google.  That's how your customers will find you, but that doesn't come easily and that's where the online marketing plan comes into play.   Sounds complicated right?  It is when you don't have a friend helping you along.  Interested?  Give me a ring.  (866) 671-1456.   By the way, ask for the owner!
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phanio | Contributor | 5/19/2009 - 2:50 pm

You can make an appointment with your local IRS office and discuss it with them. If you are making money - both Federal and State want some - so, good for you in trying to protect yourself.
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NicoleD | Former Moderator | 3/17/2009 - 2:29 pm

Thanks for your helpful input Accountingservice!

Kim | Performer | 4/3/2009 - 1:44 pm

This information given is listed in a IRS publication 535 on page 7 of the 2007 verision.  You can access this on line at www.irs.gov

johngilda87 | Window Shopper | 8/24/2009 - 5:20 am

phanio thanks for your recommendation.
Professional Web Site: http://www.commissionblueprint20review.net

Nickfb76 | Performer | 8/24/2009 - 10:24 am

As others have mentioned- im sure its a good idea to talk to someone from the IRS or possibly an attourney.  I'm pretty sure you will need to pay sales tax on your products as nobody gets to make money for free these days lol.   Im sure their are statuts stating that you must make X amount of dollars to be a legal business.  However you see people selling crafts and such at flea markets and i have a hard time believing they are legal businesses.    please let us know what you find out, i myself am now very interested in the answer.   Good Luck!
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JenniferD | Community Moderator | 2/18/2009 - 2:54 pm

IRS provides some helpful information here http://www.irs.gov/irs/article/0,,id=186056,00.html to help you determine if an activity qualifies as a hobby or a for-profit endeavor. Also, IRS has field offices located throughout the country. You may want to contact one in your local area. http://www.irs.gov/contact/index.html?cm_sp=ExternalLink-_-Federal-_-Treasury
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accountingservi | Window Shopper | 3/14/2009 - 12:33 pm

Here is a breif explaination:   What is a hobby? Hobbies, also called not-for-profit activities, are those activities that are not pursued for profit. What is a business? Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.   In order to make this determination, consider the following factors: '¢Do you run the activity in a businesslike manner? '¢Does the time and effort you put into the activity indicate an intention to make a profit? '¢Do you depend on income from the activity? '¢If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business? '¢Have you changed methods of operation to improve profitability? '¢Do you or your advisors have the knowledge needed to carry on the activity as a successful business? '¢Have you made a profit in similar activities in the past? '¢Does the activity make a profit in some years? '¢Can you expect to make a profit in the future from the appreciation of assets used in the activity?   An activity is usually considered a business if it makes a profit during at least three of the last five tax years, including the current year. An exception is breeding, showing, training or racing horses.  Such activity is presumed to be a business if it makes a profit during at least two of the last seven years.   If you are conducting a trade or business you may deduct your ordinary and necessary expenses. An ordinary expense is an expense that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business. Losses from a not-for-profit activity (hobby) may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations. It is possible to claim some deductions for hobby activities as itemized deductions on your Form 1040 income tax return.  However, there are special rules and limits to the deductions you can claim, and those deductions may not exceed the gross income from your hobby.