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PayPal and IRS
- Thread starter JTknives
- Start date
If I were you I'd keep a decent set of books as you advertise yourself in your avatar as a business. Get a local bookkeeper to do some side work for you by the hour. it'll be WAYYY cheaper than a lawyer in front of the IRS. Although my Mother, God rest her Soul, fought them, won, and made THEM pay her! $7,200.00 when the smoke cleared!!
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Paypal is just like a bank so I would consider anything from Paypal to be taxable.
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- Mar 12, 2006
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I report EVERYTHING. I mean EVERYTHING!
My wife keeps the records and we have highly detailed records going back 10 years or so.
If you're making knives--especially as a hobby--you should be able to easily offset your earnings with legitimate deductions.
My wife keeps the records and we have highly detailed records going back 10 years or so.
If you're making knives--especially as a hobby--you should be able to easily offset your earnings with legitimate deductions.
- Joined
- Jun 15, 2003
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- 1,500
What he said!
I used to always do my own taxes. Last year, with two business (knifemaking and rental property), a family, and a full time job it just got to be too much. I hired an accountant to do them. She is excellent, full of ideas and advice. Its one of those things that pays for itself. I wish I would have done it years ago. Its not worth taking the risk. Find a good accountant.
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- May 3, 2004
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- 979
Agreed,
Reguardless if you are running a business or not if you make more than $400 profit that is not taxed, then you should report it. I pay my accountant $300 a year to do my taxes, but I handle the sales tax myself. Its really not that hard to do.
I started reporting my sales when I began to make a profit, I have done so ever since.
Thanks,
Del
Reguardless if you are running a business or not if you make more than $400 profit that is not taxed, then you should report it. I pay my accountant $300 a year to do my taxes, but I handle the sales tax myself. Its really not that hard to do.
I started reporting my sales when I began to make a profit, I have done so ever since.
Thanks,
Del
- Joined
- Jan 9, 2008
- Messages
- 281
If you plan on making any business, The IRS expects you to operate at a loss for a few years really. Save receipts and incoorporate yourself once you are really up and running. If you are only making a few knives here and there for friends I am sure you have nothing to worry about.
Nathan the Machinist
KnifeMaker / Machinist / Evil Genius
Moderator
Knifemaker / Craftsman / Service Provider
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- Feb 13, 2007
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- 19,125
You've already received good answers, so I can't add much. But I'll try.
If you are generating much more than a grand in income you probably ought to start reporting it because you might get noticed. If you're reporting it, you need to keep receipts of your expenses as legitimate offsets. Sold a knife for $200, but got $50 in materials? You pay income tax on $150. But you have to keep the receipts and add them up at the end of the year and file them away in case you're ever audited.
I go to H&R block to get my taxes done for a couple hundred bucks. Hell, the expense is also tax deductable.
But the real reason to start reporting is because you're allowed to report all legitimate expenses as tax deductions. Want a new $1,000 grinder. It is a tax write off, so really it only costs you $750ish. Power, internet, even gas can be legitimate write offs.
Talk to an accountant first, it isn't very expensive. You'll possibly want to register a business name, possibly open a business bank account, and perhaps even register for a federal tax ID.
If you are generating much more than a grand in income you probably ought to start reporting it because you might get noticed. If you're reporting it, you need to keep receipts of your expenses as legitimate offsets. Sold a knife for $200, but got $50 in materials? You pay income tax on $150. But you have to keep the receipts and add them up at the end of the year and file them away in case you're ever audited.
I go to H&R block to get my taxes done for a couple hundred bucks. Hell, the expense is also tax deductable.
But the real reason to start reporting is because you're allowed to report all legitimate expenses as tax deductions. Want a new $1,000 grinder. It is a tax write off, so really it only costs you $750ish. Power, internet, even gas can be legitimate write offs.
Talk to an accountant first, it isn't very expensive. You'll possibly want to register a business name, possibly open a business bank account, and perhaps even register for a federal tax ID.
- Joined
- Jul 28, 2006
- Messages
- 3,953
Remember that the costs of using accountants, lawyers to set up an LLC, anything pertaining the operation of your business is a DEDUCTION!!!! To steal a line out of a knife magazine, "it's not how much you make, it's how much you keep."
Jerry Fisk had a book available on the ABS site on running a knife company, look to amazon or some other book store for books on running a crafting company.
Easiest way (remember I'm not a tax professional, this is not professional advice, use it at your own risk) is every quarter I do a profit/loss statement and pay a quarter of my profits quarterly. I actually do the p&l monthly for my pay but combine them for a quarterly for my taxes.
You don't have to pay someone to getyour federal tax id number, you can go to the irs website and get one for free.
Will
formerly known as badbamaump
Jerry Fisk had a book available on the ABS site on running a knife company, look to amazon or some other book store for books on running a crafting company.
Easiest way (remember I'm not a tax professional, this is not professional advice, use it at your own risk) is every quarter I do a profit/loss statement and pay a quarter of my profits quarterly. I actually do the p&l monthly for my pay but combine them for a quarterly for my taxes.
You don't have to pay someone to getyour federal tax id number, you can go to the irs website and get one for free.
Will
formerly known as badbamaump
- Joined
- Dec 31, 2007
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- 420
I think some good things to consider are
1. Get a Business license because then you can use all purchases of supplies and materials as deductions as well as Part of your house payment, phone and electrical bill based on the square footage of your home and the area designated to do knofe making. (aslo your internet for Business purposes.) you do not have to make a lot and do not have to show a profit for 3 or 4 years on a business license. the license will also give you a tax deduction on purchases for anything you use in the business.
2. Set us a separate checking account for your Knife making. all knife money goes through that. and any money you use in addition for supplies is still tax deductable.
3. Fill out a separate "Business Tax" filing for the IRS. the money you make at first will go directly back to your "Business" account to support your "Hobby/Business" and you will not pay income tax on it unless you show enough profit to pay yourslef. You will alwayse show a defecit for a while while you build equipment and supplies and get a considerable tax deduction at the end of the year.
I had a T-Shirt business in my Garage for 4 Years didnt make a much money but had a lot of deductions (Total Square footage on my garage, internet, Phone and a small Office area in the house.) This was explained to me by an accountant. (Which I believe was Tax deductable because he did only my Business tax's)
Hope this helps or is usefull in some way.
Oh and I dont know about where your at but in washington State a Business license with a Tax ID number is only $15.00 and a $5.00 Trade Name Resistration fee.
1. Get a Business license because then you can use all purchases of supplies and materials as deductions as well as Part of your house payment, phone and electrical bill based on the square footage of your home and the area designated to do knofe making. (aslo your internet for Business purposes.) you do not have to make a lot and do not have to show a profit for 3 or 4 years on a business license. the license will also give you a tax deduction on purchases for anything you use in the business.
2. Set us a separate checking account for your Knife making. all knife money goes through that. and any money you use in addition for supplies is still tax deductable.
3. Fill out a separate "Business Tax" filing for the IRS. the money you make at first will go directly back to your "Business" account to support your "Hobby/Business" and you will not pay income tax on it unless you show enough profit to pay yourslef. You will alwayse show a defecit for a while while you build equipment and supplies and get a considerable tax deduction at the end of the year.
I had a T-Shirt business in my Garage for 4 Years didnt make a much money but had a lot of deductions (Total Square footage on my garage, internet, Phone and a small Office area in the house.) This was explained to me by an accountant. (Which I believe was Tax deductable because he did only my Business tax's)
Hope this helps or is usefull in some way.
Oh and I dont know about where your at but in washington State a Business license with a Tax ID number is only $15.00 and a $5.00 Trade Name Resistration fee.
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- Nov 24, 2003
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All good advice here. One more piece.
The IRS has two categories for small home businesses: real businesses and hobby businesses. The advantage of being a "real" business is that all of your expenses are deductible against your total household income. Of course they expect you to convince them that you are a real business. The easiest way to do this is to make a profit 3 out of 5 years. The forms go into other things you can do, all of which boil down to convincing them that you are really trying to build a successful, profitable business. My wife has been going this route with her enamel and jewelry business for several years now. At this point, the profits aren't enough to live on, but they are profits.
The other option is the hobby business. It's what you become if you fail the real business test (or don't try for it). The difference is that your business expenses are only deductible against the income from that business. It's what I plan to declare as when I start selling some knives.
In either case you also need to register with your state and collect and report state sales taxes. This also gives you a tax ID to buy supplies without paying sales tax on them.
The IRS has two categories for small home businesses: real businesses and hobby businesses. The advantage of being a "real" business is that all of your expenses are deductible against your total household income. Of course they expect you to convince them that you are a real business. The easiest way to do this is to make a profit 3 out of 5 years. The forms go into other things you can do, all of which boil down to convincing them that you are really trying to build a successful, profitable business. My wife has been going this route with her enamel and jewelry business for several years now. At this point, the profits aren't enough to live on, but they are profits.
The other option is the hobby business. It's what you become if you fail the real business test (or don't try for it). The difference is that your business expenses are only deductible against the income from that business. It's what I plan to declare as when I start selling some knives.
In either case you also need to register with your state and collect and report state sales taxes. This also gives you a tax ID to buy supplies without paying sales tax on them.