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Author Topic: 1099-Misc and Schedule C versus a Hobby  (Read 11565 times)

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« on: January 26, 2013, 22:40 »
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I spend more money on my Photo Equipment than I make in Microstock.   I do Microstock to help pay for my hobby.   In a few years I might have made enough to break even on my expenses (@$20K) but that is not my goal.   So that sounds like a hobby and not a business right?

But this year I got a 1099-Misc from a couple of the agencies.   I use  turbotax and when you get a 1099-Misc that drives you to fill out schedule C and basically the Govt wants to treat you like a business.

I would rather just total up the 1099-Misc and other non 1099-misc income from my microstock and input in the hobby income along with a cost of doing business that is about the same amount..... but that could be an audit red flag.

What do you you non-business guys do?


tab62

« Reply #1 on: January 27, 2013, 02:10 »
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Hi Bob,

In Washington State you can make up to 30K on your hobby before any sales tax is to be expected. Check with you accountant on if you have to file as business which could effect your federal taxable income...


Tom

Ed

« Reply #2 on: January 27, 2013, 13:36 »
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You guys are talking apples and oranges.

Bob - The IRS has provisions relating to "hobby losses".  Essentially, you must make a profit 3 out of 5 years in order to be considered a legitimate business.  If you don't make a profit three of those five years, your loss is limited to your income.

In other words, if you have a hobby and you make $50, then you are limited to $50 in expenses and the rest of your loss is carried forward into the following year as a "passive loss".

Here's a link to the IRS Website for information => http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions

You can also look at IRS Publication 535.

Essentially, if you don't report it on schedule C, then you need to report it on the "other income" line of your 1040.  Hire a tax professional if you need help with this.


Tom - sales tax and income tax are two different things.

« Reply #3 on: January 27, 2013, 18:04 »
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congratulations - most people want to claim a business when they're actually just trying to write off a hobby, hence the IRS rules requiring a profit be shown.

since you're getting those 1099's you're now a business whether you want to be or not -- the easiest way is probably going to be reporting enough expenses to wipe out your 1099 earnings - IANATL but if you report just enough expenses to do so, you probably will be ok --or you may need to pay taxes on a small net profit

« Reply #4 on: January 29, 2013, 15:47 »
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I called the IRS on this one.   They recommended that I use Schedule E as it was a royalty.   TT does have entries for 1099-misc and other payments in the royalties area.  There are also lines for putting in expenses.   I did not ask about expenses.... should have.   Various posts on the internet on this subject is that as soon as you start trying to take deductions you look more like a business which means more paperwork, increasde audit possibilities, cities looking for business permits, etc.

So the way I see it my options are:

1. Input it in the hobby income line with expenses.   The tax is higher this way but If I put a 1099-misc in there it could trigger an audit? But it still looks like a hobby.
2. Put it in the schedule C and list expenses and/or depreciation camera stuff.  But now it looks like you are a business.  Audit time?  City Permits?  But here you get the least tax.
3. Put in Schedule E.  TT takes it.  List no expenses to avoid audits and it still looks like a hobby.  No City permits.  Higher tax.

So.... I think I will go with 3.   But if my sales keep increasing to the point where I am making more than the cost of my equipment, then,  I think it will be time to get a tax accountant.

Let me know if I am really wrong on any of this stuff... thanks.

« Reply #5 on: January 29, 2013, 16:55 »
+1
Free advice is worth what you paid for it, but I always deduct my expenses up to the amount of my income (but never more than my income). I avoid the home office deduction, which I'm told is more likely to trigger an audit, but anything I spend to generate income is fair game.  No problems so far.

RacePhoto

« Reply #6 on: January 30, 2013, 12:17 »
+1
Free advice is worth what you paid for it, but I always deduct my expenses up to the amount of my income (but never more than my income). I avoid the home office deduction, which I'm told is more likely to trigger an audit, but anything I spend to generate income is fair game.  No problems so far.

Yes my attorney friend says the same thing. That home office deduction can be a problem. My photo equipment is depreciated. I don't claim my travel and lodging expenses. I have a buffer, if I get audited, so I won't get a penalty and interest for making a mistake. In fact I'd probably get a refund.

Here's my answer. I have an accountant. I take her a big box of all my bills, receipts, checks, invoices, whatever. I hand it to her... I leave. In a couple of weeks, she phones and I have my federal and state returns e-filed.

I pay her to do it. She's trained, up to date on the laws and she saves me more with that knowledge than I pay her! I've done my own with tax software and I still pay less, paying a real full time accountant. (not one of the works for a month each year, bus drivers from those tax places)

Some times it pays to hire a professional. This goes for certified plumbers, electricians and contractors also. Kind of why we recommend that hiring a professional photographer will get you the best products and images?

My suggestion is if you want to deduct expenses and include hobby income, go ask a real account, not some do it yourself software. I'm pretty sure they are honest enough to give a free consultation, explain why you can save more than you pay them, and not worry about what happens if you get audited. Because they will explain to the IRS why and how they did the calculations. Tax software doesn't do that.

« Reply #7 on: January 30, 2013, 20:00 »
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i have both sched C and royalty income from games on sched E -- either way you pay taxes [but no FICA on sched E] 
and either way you can deduct expenses on either or both schedules


 

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