Do you have a hobby that you’ve considered turning into a business?
Two of the most common hobby markets are those for creators and service-based offerings.
Creators include hobbies like jewelry making, sewing, woodworking, painting, web and graphic design.
Service-based hobbies include dog walking, guitar lessons, personal assistants, lawn care, photography and more.
If you decide to monetize your talent, here are a few tax implications about starting your own business.
- Your income is taxable, even if you reinvest your profit into the business. Remember though, that you can offset profits with any deductible business expenses.
- You can claim startup tax deductions up to $5,000 of eligible expenses.
- Your net profit from your business will be subject to self-employment tax. Self-employment tax pays for contributions to both social security and Medicare.
- If you are self-employed, and your business gains income of over $400, you will have to file a tax return. The rules are different for startups — meaning, even though you are well below the minimum for individual return, you still have to file.
- Self-employed business owners must pay quarterly tax payments. In traditional lines of work, employers withhold federal and state taxes from your paycheck. But when you’re self-employed, you’re on your own for taxes.
Speak with a Morgan & Associates CPA today for expertly tailored advice specific to your tax situation.