Turning your hobby into a business

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.

  1. 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.
  2. You can claim startup tax deductions up to $5,000 of eligible expenses.
  3. 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.
  4. 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.
  5. 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.