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Old 08-03-2018, 01:19 AM
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Kaylen Kaylen is online now
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Transitioning, Hobby to Business

Hi, I am in the beginning stages of turning my hobby into income,,,I have a million questions,but I am working one step at a time, I am not in a hurry as I own a successful window cleaning business in the meantime,,,
my house will be paid off in seven years so I am aiming for that,but I dont want to wait, I have a website (see sig.),and a collection of works,,,I plan on starting a blog ,
I guess my first question is,,,Do I need to report to any gov. agency that I am a business,,,like a D B A ?
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2nd rule,turn off the TV
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Old 08-03-2018, 09:16 AM
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Humbaba Humbaba is online now
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Re: Transitioning, Hobby to Business

It would be wise to ask for advise to your in house accountant and or lawyer. You said you have a business, so I assume that you, at least once a year talk, to one of the two professionals I mentioned above.

Depending upon how predatory your government tax agency is, you probably have to report your income from selling art, and in extreme cases register your online business.

Do not believe a word of what I type here, get real advise.

Good luck
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Old 08-03-2018, 10:01 AM
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Kaylen Kaylen is online now
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Re: Transitioning, Hobby to Business

Thanks,,I do my own accounting ,but that is a good idea. now that I think about it I think I know someone to ask,,,what are some of the better books on this subject??
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The first rule of watercolor is "Don't put your brush in the coffee"
2nd rule,turn off the TV
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Old 08-04-2018, 04:24 PM
Michael Lion Michael Lion is offline
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Re: Transitioning, Hobby to Business

Quote:
Originally Posted by Kaylen
I guess my first question is,,,Do I need to report to any gov. agency that I am a business,,,like a D B A ?

No, you do not, this is a free country (assuming you're in the United States). Well still sort of almost a free country.

Except for sales tax, yes you are supposed to pay sales tax if you sell stuff.
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Old 08-04-2018, 06:42 PM
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virgil carter virgil carter is online now
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Re: Transitioning, Hobby to Business

The tax law has changed this year, and I don't know if art expenses (business expenses) will be deductible, but you should keep track of them.

I'm sure that art revenue will be reportable. It always is, including the sales tax.

You need an accountant for advise, but I've always run my business as a sole proprietorship and file returns as part of my annual personal returns.

Hope this helps.

Sling paint,
Virgil
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Old 08-05-2018, 03:37 AM
picassolite picassolite is offline
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Re: Transitioning, Hobby to Business

Hi Kaylen,

Thank you for your insightful comments on '57 Chevy.

Regarding your question about turning your hobby into a business ...

Now is the best time to be an artist in business for yourself.

As for the legal paperwork - like a business license and taxes - check the state of Texas government site.

I have found you might want to go for a LLC - single owner.

But that is actually down the road... as the legal stuff can be done at any time.

For now - I suggest you think about what will be your business model - How will your art make you big bucks.

1- do you want to paint commissions? You schmooze - you connect - you paint - you sell. Rinse and repeat. One sale at a time.

2- do you want to sell through galleries? You paint - when they sell - they take 40-60% ... when your painting sells. Erratic income stream.

3- do you want to go for the really big bucks by licensing your art? You sell one image thousands of times and take royalties.

As you have lots of time - I urge you to consider the licensing business model.

I have looked at your art site and your plants seem to work nicely when it comes to licensing.

* see article on licensing - https://focuspointshape.com/newslett...art-superstar/

* google - "suren nersisyan+stores" and look for stores his images are selling in.

Here are some more helpful sites to get your 'feet wet' with licensing.

* You might want to 'friend' Jill Brahms Meyer on facebook - an active licensing artist to obtain her insights.

* http://www.artlicensinginfo.com/how-...censing-ebook/

* http://mariabrophy.com/guest-post/ho...t-for-you.html

* http://www.laweekly.com/news/if-corp...p-them-5589472

two Venice lawyers who've made a business of championing underdogs in the city's growing population of creative entrepreneurs: Scott Burroughs,

36, and Stephen Doniger, 43.

* BEWARE- “We show them (a mass retailer) the art, but we don’t want to show them unique formats because they are closely aligned with {a big
China factory}, and they just knock everything off.” – from a gift company
> http://twotownstudios.blogspot.com/

Licensing has it's upside (very lucrative) and downside (design theft)
... but somewhere in between is a niche you might find profitable.

If I had discovered this avenue about 30 years ago ... I know I would have pursued it... as it takes time to get it rolling.

Best regards,

Picassolite
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Old 08-05-2018, 02:15 PM
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Kaylen Kaylen is online now
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Re: Transitioning, Hobby to Business

Thanks everyone for your guidance,,,
I will look into those links ,,,,
I am making a to do list and checking things off,,,
I do feel inclined to do commission work and I see a lot of other artists sell prints,,,I want to explore that possibility also.
I will research the licensing aspect...
Thanks again,,,I am not really ready to make a big move ,but want to get the ball rolling so I understand whats involved down the road a ways.
I finally for the first time in my life have a studio including several painting areas a prep area, and I am almost done with my ,mat/shrinkwrap/framing area...
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The first rule of watercolor is "Don't put your brush in the coffee"
2nd rule,turn off the TV
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Old 08-05-2018, 10:24 PM
Harold Roth Harold Roth is offline
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Re: Transitioning, Hobby to Business

Any income you make from your art has to be reported as income to the IRS. You use Schedule C to do that. You might think well, I am not going to be making any money for a while. But you will be spending it--on art supplies but also the business use of your home, which is a deduction off in your income (so that's pre-tax money you use to pay a portion of your utilities, rent, insurance, etc). You can run at a loss for three years before the IRS demands you either make a business for real or just suck up your expenses because you've got a hobby, not a business. Don't let anyone tell you you don't need to report your income below some fictitious number, like $20K. You report your income and remember to put aside money for self-employment tax.

Best resource I know for doing taxes as a sole proprietorship (which I also suggest and have been doing for more than 20 years), is Nolo's "Deduct It!" I find it to be easier to understand than a lot of the other books out there.

One way to keep things simple is to set up a separate checking account for your art and always use a debit card tied to it for every single purchase you make re your art. That way you have got all your 'receipts' right there in your bank statements when it's time to do your taxes. Don't ever pay cash because let me tell you, you will forget to write it down.
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Old 08-07-2018, 12:53 AM
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Kaylen Kaylen is online now
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Re: Transitioning, Hobby to Business

Thanks Harold, that sounds right,,I am a sole proprietor in my other business and I do exactly that with my business checking and put away a percent for April ,,,next day off I will file a DBA . I think I have to ,in order to set up paypal on my website
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The first rule of watercolor is "Don't put your brush in the coffee"
2nd rule,turn off the TV
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Old 08-10-2018, 04:55 PM
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AnnieA AnnieA is offline
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Re: Transitioning, Hobby to Business

My 2017 income from art was considered "Hobby" income this past year. It was listed under "Other Income" on the tax form, rather than self-employment income for which there's a separate form to fill out.

I've read that it's advantageous to file as a business, since there's more that you can deduct - and the new tax law apparently makes it even more advantageous. But I'm only beginning to wade all through this stuff myself, so take anything I say with grain of salt. There is a lot of info online about how to tell if you've got business or hobby income.

And the IRS has instructions and info as well. Since I had to research the hobby vs business topic myself, I'm going to copy some of it for you. I'm sorry about the awful formatting; things just don't paste properly into WC messages. I tried to make it a little easier to read, but you might want to check it out for yourself by downloading the two publications mentioned here.

Quote:
Publication 535
Cat. No. 15065Z
Business Expenses
For use in preparing 2017 Returns

Page 6 Chapter 1 Deducting Business Expenses
(Note: referred here from “Hobby Expenses” section of IRS Pub 529)

Not-for-Profit Activities
If you do not carry on your business or invest- ment activity to make a profit, you cannot use a loss from the activity to offset other income. Ac- tivities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit.

The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

In determining whether you are carrying on an activity for profit, several factors are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

Quote:
You carry on the activity in a businesslike manner,
The time and effort you put into the activity indicate you intend to make it profitable, You depend on the income for your liveli- hood,

Your losses are due to circumstances be- yond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability,

You (or your advisors) have the knowledge needed to carry on the activity as a suc- cessful business,
You were successful in making a profit in similar activities in the past,

The activity makes a profit in some years, and


You can expect to make a future profit from the appreciation of the assets used in the activity.

Presumption of profit. An activity is pre- sumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they pro- duced a profit in at least 2 of the last 7 tax years, including the current year. The activity must be substantially the same for each year within this period. You have a profit when the gross income from an activity exceeds the de- ductions.

If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer's death.

If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. This means the limits discussed here will not apply. You can take all your business deductions from the activity, even for the years that you have a loss. You can rely on this presumption unless the IRS later shows it to be invalid.

Using the presumption later. If you are start- ing an activity and do not have 3 (or 2) years showing a profit, you can elect to have the pre- sumption made after you have the 5 (or 7) years of experience allowed by the test.
You can elect to do this by filing Form 5213. Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity.

The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. Accordingly, it will not restrict your deductions. Rather, you will gain time to earn a profit in the required number of years. If you show 3 (or 2) years of profit at the end of this period, your de- ductions are not limited under these rules. If you do not have 3 (or 2) years of profit, the limit can
be applied retroactively to any year with a loss in the 5-year (or 7-year) period.
Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the tax return for the last year of the period. The period is extended only for deductions of the activity and any related deductions that might be affected.

You must file Form 5213 within 3 years TIP after the due date of your tax return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the IRS proposing to disallow de-
ductions attributable to the activity.

Gross Income
Gross income from a not-for-profit activity in- cludes the total of all gains from the sale, ex- change, or other disposition of property, and all other gross receipts derived from the activity. Gross income from the activity also includes capital gains and rents received for the use of property that is held in connection with the ac- tivity.
You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of account- ing.

Limit on Deductions
If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. If you are an individual, these deductions may be taken only if you itemize. These deductions may be taken on Schedule A (Form 1040).

Quote:
Category 1. Deductions you can take for per- sonal as well as for business activities are al- lowed in full. For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. Deduct them on the appropriate lines of Schedule A (Form 1040).
For the limits that apply to home mortgage interest, see Pub. 936.
Generally, you can deduct a casualty loss on property you own for personal use only to the extent each casualty loss is more than $100, and the total of all casualty losses ex- ceeds 10% of your adjusted gross income (AGI). See Pub. 547 for more information on casualty losses.
Disaster tax relief. Disaster tax relief was enacted for those impacted by Hurricane Har- vey, Irma, or Maria. As a result, you may be re- quired to calculate your casualty loss differently. For more information, see Pub. 976, Disaster Relief.

Category 2. Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income
from the activity is more than your deductions under the first category. Most business deduc- tions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category.

Category 3. Business deductions that de- crease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. Deductions for depreci- ation, amortization, and the part of a casualty loss an individual could not deduct in category 1 belong in this category. Where more than one asset is involved, allocate depreciation and these other deductions proportionally.
Individuals must claim the amounts in TIP categories 2 and 3 as miscellaneous deductions on Schedule A (Form 1040). They are subject to the 2%-of-adjus- ted-gross-income limit. See Pub. 529 for infor- mation on this limit.

There were some examples that followed all this, but the formatting was so bad that I didn't copy them, and as was noted above, there's more information in IRS Publication 529. I hope this may help you. I think the advice to talk to an accountant is wise.
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Last edited by AnnieA : 08-10-2018 at 05:07 PM.
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