Hobby Income

Can anyone tell me: is there any tax limit on how much you can earn with
pottery as a hobby? I will probably gross $2000 next year. With this small an
amount, I don't feel the need to do it as a business. Of course, I will declare
the income for taxes which prompted the question.

Any ideas, suggestions? Thanks for any info

Marianne

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. :-)

On 13 Aug 2003 15:47:53 GMT, (Nine Tiger) wrote:

Can anyone tell me: is there any tax limit on how much you can earn with
pottery as a hobby? I will probably gross $2000 next year. With this small an
amount, I don't feel the need to do it as a business. Of course, I will declare
the income for taxes which prompted the question.

Any ideas, suggestions? Thanks for any info

Marianne


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
www.daqarta.com

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

"Nine Tiger" wrote in message
...
Can anyone tell me: is there any tax limit on how much you can earn with
pottery as a hobby? I will probably gross $2000 next year. With this small
an
amount, I don't feel the need to do it as a business. Of course, I will
declare
the income for taxes which prompted the question.

Any ideas, suggestions? Thanks for any info

Marianne

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


Subject: Hobby Income
From: (SpunMud)
Date: 8/16/2003 7:13 AM Pacific Daylight Time
Message-id:

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!








steve graber

(Nine Tiger) wrote in
:

Can anyone tell me: is there any tax limit on how much you can earn
with pottery as a hobby? I will probably gross $2000 next year. With
this small an amount, I don't feel the need to do it as a business. Of
course, I will declare the income for taxes which prompted the
question.

Any ideas, suggestions? Thanks for any info

Marianne

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
80% chance of going broke in the first year

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

"Uncle John" wrote in message
...
Jan Clauson wrote in news:w260b.72$Ls2.45
@newsread4.news.pas.earthlink.net:

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


I think my figure of 80% was a bit optimistic. Our business failure rate
in small businesses is probably the same as yours.

You are right about needing to do the background inquiries and costings
before opening the doors on a new business.

In New Zealand compliance costs are high both in time and real costs,
particularly with dealings with the Inland Revenue Department. There's
Good and Services tax (also known as GST or grab, snatch and take).
Income tax, PAYE, ( this is the tax the employer deducts from his
employees wages) Fringe benefit tax, company tax, and the list goes on.
Every business owner is an unpaid tax gather for the government.

In my experience potters generally tend to be the worst in setting up and
running their pottery as a business venture. There is some sort of
feeling that a pot is imbued with a built in life force and artistic
merit and that buyers will not only beat a path to the front door but
will kick it in as well so that they can get their hands on it. They do
not have a clue what their market is, or what their production and
running costs are. Ask them about depreciation on their equipment and
replacement and all you get is a blank look. Probably what you look like
if you've got lead poisoning.

I am always amazed by the number of people who post to this group and say
they have just bought a kiln and a wheel and want to set up in business,
and how to go about it. What most don't realise or do not want to realise
because they are "artists" that pottery production is hard physical work
with long hours and endless repetition, come summer or winter. No matter
what you make you need to sell it. The studio potters that are making it
are market and cost driven, but then most of them, even the most popular,
are holding down another job in teaching or something else. The ones that
fail are the ones that felt that they control the market.

Most don't even know if they want to retail or wholesale

I was talking to a well respected potter the other day who has been
around for ever. He said that he can sit down and make 150 coffee mugs in
one sitting but he can't sell 150 mugs a year now. He is now moving on
into one off brick sculpture.

It also seems that most collectors are also fellow potters.

Because of the influx of cheap imported ware (Italian, Chinese etc) the
demand for hand made domestic ware has virtually gone. To make a go of it
you need to to manufacture ( and no matter what abstract philosphy you
want to imbue you work with, pottery is a manufacturing process)
decorative objects of some sort.

I think that the big failure is that there has been no education of the
younger people who are the future market into a love of hand made craft
objects, be they pottery, leatherwork, glass or what ever. I would
imagine it is a world wide problem.

Uncle John