Been making boards for people to keep improving without cost to myself. I give a price on the board, I order all supplies etc, and then they pay me. This is obviously not my money making job. My overall profit very low after paying for supplies.
Wondering how anyone in the same situation deals with taxes.
Thanks
Rick/
what taxes?
it’s the underground economy.
Worst case, your enemies might call the IRS. I strongly doubt the IRS has the means or time to investigate a backyard business, and there is very little in it for them. But then, I once got a ticket for jaywalking at 0-dark-thirty in the morning. Sucked.
I think you only need to worry about it if you have a business license and have been purchasing the materials tax-free.
In the UK you have to declare yourself as self employed within 3 months of starting to work for yourself. Regardless of whether you have a “real” job and of how much you earn, it has to be declared. I would imagine it is probably a similar rule in the USA.
Here there’s a set fine you have to pay if you are found to be self employed and haven’t declared it within 3 months of starting. (If you work as a limited company, you have to set that up before you start trading)
If you want to do it and not need to pay taxes on it, then the only way you can really do that without recriminations is to handle no money.
You order the stuff you need, the person you’re making it for then pays direct to the company.
I know it can be really quite easy to slip under the radar, keep it small scale and low profit, just saving the few dollars profit on each board for beer money, your own boards or something like that - but if the IRS decide you’ve been earning money you can probably expect to have to pay tax retrospectively and probably a fine too.
Here they basically say how much they think you’ve earned and you have to pay tax on that - the only way out of it is to have proper records of incoming and outgoing - then you have a change of being taxed solely on the profit.
Oh and just a point… “Malawitz Surfboards” - sounds like a company to me, a brand if you will, It would be much easier to say you were doing it as a hobby, made no money on it and it was all for the love of making boards for fun if there wasn’t a brand name on the boards. As it stands, anyone looking to stitch you up for a few dollars (the IRS tend to do that kind of thing) would blow that one out of the water with the fact that you work with a brand name. I would think.
I’m not a tax adviser and the only tax laws I have any experience with are the UK ones. Your mileage may vary.
I wonder, does anyone on here actually declare their side income and pay any taxes required on that?
1 pay tax on the materials
2 dont charge sales tax to customer
3 dont give reciept to customer
4 the customer is allways a friend of yours ( if anyone ask’s )
5 Allways say “no profit”
So I’m meeting with my new accountant tomorrow. Deal is I quit my FT job a couple months ago, moved to nyc, and now working strickly freelance. So need to do all my own taxes. Fun. But money is really good so worth all the extra efforts.
And as far as making a brand for myself, i see what your saying. On the other hand if I don’t make my boards look ‘legit’ people won’t buy them.
so…
anyway.
thanks all.
r
i would say you are running a business as you have a website stating you sell boards and are taking orders. just my two cents as alegit business owner.
yeah.
maybe deduct enough to show no profit.
that’s what the accountant was trying to explain when we tlkaed on the phone.
guess i’ll figure out more when we meet in the am.
OH !
so its a real buisness.
be an american and pay your tax’s
but fudge what ever you can
yeah something like that.
realistically i’m making no money anyway.
if not costing me.
i’ll be inc or some sort with my ‘real’ job.
don’t need this coming back to me.
If you havent filed a ficticious buisness name or applied for a licence there realy is no tracing of buisness.
having a web site doesnt mean a thing.
if you did have a licence you would be entitaled to wholesale prices tax free, but then the customer pays the tax’s and you keep records via reciepts and forward the bucks to uncle sam.
or something like that
yeah. it’s probably not even a big deal. not planning on making it a business. just a hobby. but from the cost of supplies it could easily get close to $10k of money changing hands over a year. thus the dilemna.
So I’m meeting with my new accountant tomorrow. Deal is I quit my FT job a couple months ago, moved to nyc, and now working strickly freelance. So need to do all my own taxes. Fun. But money is really good so worth all the extra efforts.
I’m assuming your freelance work is not building surfboards?
I’ve spent various years freelancing, and made every effort to not cross IRS boundaries. That meant reporting every penny I earned, although I don’t recall paying it quarterly as I never knew where the next dollar came from. Those were quieter times, however, and today nearly anything can trip red flags and get you checked out. Your biggest protection comes from how many people out there are actively trying to rip the IRS off…you may be too small potatoes to mess with, especially if you are paying the income taxes.
On the other hand, if your full-time freelance gig gets attention, you better make sure you can explain everything with the board building sideline. Your website makes it look like a regular if low volume business. People used to buy used cars and fix them up and sell them…so regulatory agencies said “5 per year” or buy a business/dealer liscense. I don’t know that anybody has come up with anything for limited edition surfboards. It might be worthwhile to have your accountant look at it like artwork. Smart fine art painters still do things legit though…get business liscenses and tax id numbers so they can save on supplies by not paying sales taxes (“goods bought for resale purposes only”).
Maybe you can fold the surfboard biz into your main business? Sole proprietor wearing many hats?
One trick on the business liscense is that a lot of places require inspections, even if you “work from home”. As a writer I was required to have a fire inspection among other things…they were to check the electrical draw of whatever layout I had in my office space. Let’s say that can get very picky…
And as far as making a brand for myself, i see what your saying. On the other hand if I don’t make my boards look ‘legit’ people won’t buy them.
Well, your construction methods will determine what looks legit or not in the surfboard world. You could approach them like paintings and proceed that way. But with your website the way it is, if that’s your window to the world…that’s the only legit thing about the situation. Real legitimacy means taxes and liscenses. Otherwise keep one eye open…
Nels
On the hand if you decide to make it a business and you never show a profit, if you ever get audited, the IRS can declare that your business is actually a hobby, void your all expences/deductions and nail you with back taxes and penalties.
Remember when it comes to Tax Laws the burden of proof is imposed on the accused. That is to say your guilty until you prove yourself innocent.
You only have to pay taxes on PROFIT. If you are not making any profit, you don’t have to pay taxes.
I would still suggest doing some bookkeeping, because if you lose money in the business you can deduct that from your tax bill.
P.S. Fuck income tax, anyway… it is illegal.
I did register my boardbuilding as a business. The Business License, Ficticious Name publication, and a PO Box add up to less than $60 a year. I make sure & declare my revenue - sell used boards on Craigslist & keep the confirmation emails. And then I also deduct all my associated tools, supplies, mileage, advertising (web, email etc.) expenses, banking costs, shipping…
I showed a beautiful $6K loss last year. And that’s a straight credit - not a deduction, only allowed against your tax rate, but a real loss against income - against your other income. So…I can spend $6K on tools & supplies, and mileage (just run that number - at $.41/mile, it was more than half my expenses!) or I can send the SAME $6K to the IRS in taxes…Hmmmm…lemme think about that one :
Yes, after 3 years, the Service can declare your ‘business’ a hobby. And disallow any further deductions. But not retroactively.
And honestly? 3 years from now, we’ll hopefully have an Administration to which I won’t mind paying taxes. But funding these guys? No Freaking Way. 
Where “Big Brother” is concerned, consider the wisdom of registering your name and address when you apply for your “Ace Club Card.” Everything you buy is entered in your profile. Acetone, Xylene, fertilizer, etc might be just what big brother is looking for in their attempts to identify meth cooks, bomb makers or whatever.
I’ve even heard that buying something like hummus or pita bread and swiping your grocery card can trigger an alert since middle easterners eat that stuff too.
You are correct, it is not a deduction in the tax lingo sense, it is a credit. Which is WAY better. Less money you have to pay in taxes.
But with regards to thinking that the next administration is going to do better with our tax money… you are CRAZY (unless Ron Paul is elected).
The Bush administration has eroded personal and state rights and greatly expanded the power of the federal government and in particular the Executive branch. I wouldn’t think for a second that the Dems are not going to take advantage of this newly expanded executive power.
benny is right.
plus, there are a lot of business expenses associated with a small business beyond materials and labor:
vehicle: if you dedicate a vehicle to the business, there is depreciation, insurance payments, mileage, and interest (if you are buying on time) that can be deducted from “profits”.
if you use a room of your house or other attached space (carport shed)…a percentage of your home expenses can be be deducted from profits…say a 10 room house and 1 room is used for the business exclusively…10% of mortgage/utilities/etc… can be deducted from “profits”.
advertising: the cost of any website you might use exclusively to market your product is deductible, as is any other sort of media advertising.
marketing: if you attend any trade shows to market your product, that is deductible. like the big trade show in so cal or orlando…air fare, lodging, meals,etc. to say nothing of those trips to open up markets for your product in other countries…costa rica, portugal, etc…all the same. keep records of the shops in costa and portugal, brasil, bali, that you talked to and what you left with them (if anything) as samples. like a board, or a video, or business cards, or print handouts, etc…get the names of the people you talked to.
R&D: new designs that you are trying out for yourself or your team…all deductible…like that gun for hawaii.
there’s a lot more stuff…see the tax guides published by the IRS.
combined, these things usually add up to a loss from your small business. which then can be counted as a deduction from the income from your real job. resulting in legitimately and honestly not paying taxes.
we are not obligated to pay taxes. we are only obligated to follow the tax laws and to honestly report our earnings or losses and to pay taxes on any income that we report.
i was in business as my real job for about 10 years. my tax guy was a retired IRS field supervisor. he did things that were waaay beyond the simple stuff above…and nothing ever happened.
in 3 years, close down that business, and open another, maybe a corporation. run it for 3 years. shut it down…etc… do it all formally. keep records.
that last little venture of mine that went nowhere…the keysafe…paid for itself in 2 years thru income tax deductions. plus i still got the mold and about 100 safes left from the 1st run. and a business license. and deductions.
pete.
Rick,
Look around you. I too have lived in Brooklyn. How many people in your neighborhood do you think are worried about the IRS?