I marvel at the online sellers, I say marvel not necessarily in a good way.The online availability that has allowed everyone and anyone to sell online has also allowed folks who really have no experience with online selling or any experience even with retail sales.This is a problem for those who have spent years perfecting their craft of sales and marketing. I've been in the retail and service industry for more than 45 years and there is a proven way to sell products, Whether in a B&M store of an online store, It's pretty much the same.
There are some very basic things one should know before beginning to sell or set up shop, First and foremost you need to check with your city or county to see what is required to sell online,Hobby Sellers may not be required to be licensed, But Most jurisdictions require a business license and a sellers permit to collect sales tax on sales with in your own state.
Many seller are mistaken in thinking that they are just hobby sellers, therefore no license required, But unless you plan on losing money in you venture, You most likely want to make a profit, that makes you a business, I don't know what many of these sellers are going to do when the IRS does an Audit.
Here is some information you may or may not want to know.It's easy to do like this fellow and just put your head in the sand and hope no one see's you,But I can tell you that it will haunt you from time to time,That's why he keeps having to check to see if he is being spotted.
Many a business starts out as a hobby and then turns into a profitable activity. An activity may continue to be a hobby after it produces taxable income if you pursue it without expecting to make a taxable profit. But, if you reasonably expect to earn a profit; you have more than a hobby, you have a business.
What are the tax implications for a business versus a hobby?
Income from an activity is taxable, whether the activity is a hobby or a business. The good news is that you can deduct expenses up to the amount of the hobby income you earn. You can't claim a loss from the hobby. Taxpayers who incorrectly report losses from hobby activities can be subject to additional taxes, interest and penalties in an audit.
What does the IRS consider when deciding if something is a business or a hobby?
The IRS presumes an activity is a business if it makes a profit during at least three of the last five tax years, including the current year. The time frame is different for breeding, showing, training or racing horses. In those instances, we consider it a hobby if it earns a profit in two of the last seven years. If the profit requirement isn't met, the activity may still be considered a business, depending on certain factors.
Here are a few questions to help you make the correct determination.
Do you spend enough time and effort on the activity to make a profit?
Do you depend on the income for your livelihood?
Have you changed how you operate?
Do you carry on the activity in a businesslike manner?
Do you have the knowledge needed to carry on the activity as a successful business?
How should hobby income and deductions be claimed?
Income earned from a hobby should be reported as other income on Form 1040.
Deductions for hobby activities are claimed as itemized deductions on Schedule A.
Take them in this order and only to this extent. First, take deductions that may be both personal and business related, such as home mortgage interest and taxes, take those in full.
Second, take deductions that don't adjust your basis, such as advertising, insurance premiums and wages. If your gross income for the activity exceeds the deductions you took in the first category, take only the excess here. These expenses are deducted as miscellaneous itemized deductions.
Third, take business deductions that reduce the base of the property, such as depreciation and amortization. Again, take only the amount where your gross income for the activity is more than the deductions you took in the first two categories.
These are also taken as miscellaneous itemized deductions.
What deductions can I take if my hobby has turned into a business?
If an activity qualifies as a business, you may deduct ordinary and necessary expenses. An ordinary expense is one that is common and accepted in that trade or business.
A necessary expense is one that is appropriate for the business. Personal expenses are usually not deductible.
Where can taxpayers get more information?
If you're a new business owner, know your federal tax responsibilities. Visit IRS.gov/smallbiz (with a "z") for help and information.
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