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Taxes on Art/Fursuits/Fursuit parts/Etc

Not a beware, a seeking advise post. I've been wondering something lately, and I am willing to bet someone here knows, or at least knows how I can find out this information:

What is the policy regarding filing taxes on art? I was informed by a friend that I HAVE TO file taxes or else i'll get into huge trouble with the IRS.. and I don't want that. I was always under the impression that art, unless you made a significant amount ($1,500 or more) that you didn't need to bother, since it wasn't something the IRS was 'worried' about, then again this is what my Grandfather told me, who sells books online on Amazon, and makes a pretty decent profit doing so, but it's also his hobby.

So i'm coming here seeking advice, thanks a bunch for reading.

For specific tax information I live in the state on Illinois (since I know sometimes they differ by state, at least as far as state taxes is concerned, federal is just that.) and i'm considered independent because I live on my own, so I claimed myself on my W2 at work.

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Comments

( 32 comments — Leave a comment )
mariechan
Nov. 23rd, 2011 12:02 am (UTC)
I did find this link if it's helpful:

http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/2009/03/hobby-or-business-tax-issues-for-both.html

Anyways, it's been a few years since I took Taxes I and I no longer have the textbook, but if I recall the IRS counts income as from any derived sources which include hobbies. You can deduct expenses but only up to $1,000.

Personally I don't report mine because I don't make enough money in general to file an income tax return.
lackoflollies
Nov. 23rd, 2011 12:27 am (UTC)
I'm sorry, this is still confusing. In lame-ens terms, unless I make $1,000 or more, don't bother?
(no subject) - selunca - Nov. 23rd, 2011 12:37 am (UTC) - Expand
(no subject) - greenreaper - Nov. 23rd, 2011 02:51 am (UTC) - Expand
(no subject) - selunca - Nov. 23rd, 2011 03:28 am (UTC) - Expand
(no subject) - celestinaketzia - Nov. 23rd, 2011 12:42 am (UTC) - Expand
(no subject) - lackoflollies - Nov. 23rd, 2011 01:03 am (UTC) - Expand
(no subject) - celestinaketzia - Nov. 24th, 2011 05:15 am (UTC) - Expand
greenreaper
Nov. 23rd, 2011 02:55 am (UTC)
I don't report mine because I don't make enough money in general to file an income tax return.

You may be missing out. The Earned Income Tax Credit is refundable, meaning you're leaving money on the table if you don't file. (If you saved any money in a retirement fund, you could earn even more from it by adding the Savers Credit to cover any tax which you would owe if not for EITC.)
(no subject) - fenris_lorsrai - Nov. 23rd, 2011 03:42 am (UTC) - Expand
(no subject) - greenreaper - Nov. 23rd, 2011 03:13 pm (UTC) - Expand
(no subject) - mariechan - Nov. 23rd, 2011 07:38 pm (UTC) - Expand
(no subject) - kriscynical - Nov. 23rd, 2011 01:24 pm (UTC) - Expand
(no subject) - mariechan - Nov. 23rd, 2011 04:29 pm (UTC) - Expand
(no subject) - greenreaper - Nov. 23rd, 2011 08:35 pm (UTC) - Expand
nambroth
Nov. 23rd, 2011 01:39 am (UTC)
In addition to the above posters, it is important to note that the minimum income that the IRS requires in order to file a tax return is INCLUDING any normal income you get from a job elsewhere.

That is, if I make $5,000 in a year at a part time job somewhere as reported on my W2, and make only $100 in a year on art commissions, the IRS sees that as $5,100 total (they-- the IRS-- KNOWS about your W2 earnings since it is reported. It is technically up to you to report any other income. Some people do, some don't-- but don't ever get caught if you don't). It is misleading to look at your creative income and your 'normal job' income as two separate entities in relation to how much you need to make in order to file.

It's up to you if you want to count your side earnings as a business or a hobby. Each has pros and cons. Really, and I know it's a pain to hear it, but for the first year it's very helpful to talk to a tax professional (that is educated in self-employed earnings) because at first it's all very confusing, but after you do it for a few years it does get 'easier'.
lackoflollies
Nov. 23rd, 2011 01:42 am (UTC)
"but for the first year it's very helpful to talk to a tax professional (that is educated in self-employed earnings)"This was something I was gonna actually look into, I figured i'd come here first before I paid for someone's services.
(no subject) - nambroth - Nov. 23rd, 2011 01:52 am (UTC) - Expand
(no subject) - lackoflollies - Nov. 23rd, 2011 02:04 am (UTC) - Expand
greenreaper
Nov. 23rd, 2011 02:46 am (UTC)
I suggest you file taxes as a sole proprietorship (or if you're serious, a more organized form) using Schedule C or C-EZ as appropriate. You can then deduct relevant expenses against income directly. If you treat it as "other/hobby income" then the hobby expenses can only be deducted once they exceed 2% of your adjusted gross income - and you have to forego the standard deduction, which is often better than itemizing deductions.

The down-side: you probably have to pay self-employment taxes (Schedule SE), unless net profit is below $400 or so per year, and you also have to make a profit in three out of five years or they start questioning whether you're really running a business (there are various other factors that may apply).

Note that state and local sales tax may apply, too, wherever you are carrying on a business. For example, if you go to MFF, and sell there, you owe money to the local authorities.
lackoflollies
Nov. 23rd, 2011 03:07 am (UTC)
This makes sense, it'll make more sense when I get to talks with a tas consultant, if it gets to that point. I don't want to break any laws, but I also don't want to waste my time and money.. but better safe then sorry, right? :)

Thank you for your advice.
(no subject) - greenreaper - Nov. 23rd, 2011 03:16 am (UTC) - Expand
(no subject) - lackoflollies - Nov. 23rd, 2011 03:46 am (UTC) - Expand
snobahr
Nov. 23rd, 2011 04:09 am (UTC)
Tax professionals don't bite. Honest. We recently started our own business, and our accountant is really nice, very helpful, and extremely supportive.
lackoflollies
Nov. 23rd, 2011 04:13 am (UTC)
That's good to hear, haha.
(no subject) - kriscynical - Nov. 23rd, 2011 01:32 pm (UTC) - Expand
kriscynical
Nov. 23rd, 2011 01:21 pm (UTC)
I use my dad's CPA for my taxes. For all clients I do work for within the state of Texas I have to charge sales tax. For Texas residents as well as every job I have, private commission or for a company, I report the income to the IRS along with all business expenses I have throughout the year like my business cell, supplies, website server fees, etc. I also make significantly more per year on my work than $1500 (not meaning that to brag, I mean it that I'm above the cut-off for supposed requirement for filing).

All of my deductions have balanced out my income in the last few years to the point that I had to pay a whopping $12 last year. lol
loregryph
Nov. 23rd, 2011 03:27 pm (UTC)
Yes, you have to pay taxes on your "other" income. My own rule of thumb is to put at least 20% of my art and costuming earnings aside into a savings account so that come tax time, I should be covered.

I also have spreadsheets to keep track of materials purchased, other expenses and orders (including running totals for earnings each month). All my receipts go into a box for storage. Doing it this way is MUCH easier than trying to figure out everything at the end of the year! Makes it much easier for the tax guy too!
lackoflollies
Nov. 23rd, 2011 04:02 pm (UTC)
This is a good idea, thank you.
zrcalo
Nov. 23rd, 2011 10:45 pm (UTC)
so you dont have to file taxes unless you earn more than $5000 a year?

I make about $2600 a year and thats just to pay for rent and food. I think every month I make about $220. I cant even afford my car insurance. (luckily I have family that can)

what if you're still "technically" considered a dependant? I read that you can be a dependant until the age of 25.
greenreaper
Nov. 24th, 2011 09:52 am (UTC)
Ask the interactive tax assistant, bearing these credits in mind.

Whether it makes sense to be claimed as a dependent is itself an important tax question for some people.
elmenora
Nov. 28th, 2011 03:09 am (UTC)
I'm not a tax pro, so take this with a grain of salt.

To my knowledge, you technically have to file taxes on ALL income, no matter what source. Even if you only make a few bucks on it that still counts as income and still needs to go on your taxes. The hobby/professional distinction is important because there are some differences in HOW the money is taxed and what you can claim as deductions, etc.

Practically speaking if you're only making a couple hundred a year, the IRS probably won't notice. They've got bigger fish to fry.
( 32 comments — Leave a comment )

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