The Small Business Association

by: James Anderson. Total views: 44 Word Count: 520
Starting and running a business is more than just making a product, worrying about insurance issues and paying your employees. You have to also consider accounts payable, accounts receivable and making sure you pay the appropriate taxes on the profit you make. The state and federal government want their share of the pie too.

You need to decide if what you are doing should be considered a hobby or a business. Businesses are formed to make a profit. Hobbies do not make a profit, even if a friend or two slides you a couple of bucks to make something for them. If you are spending more money on your supplies than what you’re bringing in for an income, you probably are safe in saying you’re participating in a hobby and not a business. There a few things you should ask yourself before applying for a business license to determine if what you are doing should be considered a hobby or business.

Are you doing this to make a profit? If you are, then this could be considered a business venture. When you find yourself relying on the money you get from something you enjoy doing to pay bills or buy groceries, then you are participating in a business venture. You are making an income for yourself. This is really the biggest indication that what may have started out as a simple hobby has moved into something bigger.

Did you try to turn your hobby into a business at one point at time and suffer a loss during the start-up phase? If you can say yes to this question and know what ‘start-up phase’ means, then yes, you were engaging in business activities. And if you’ve been making a profit on your hobby over the last few years that you could count as an income, this is a business, especially if you think you’re going to continue making a profit in years to come.

One thing you need to do is see if your hobby gave you a profit over the last three years, including the current year you’re in. The best thing you can do is try and reconstruct a paper trail in order to see if you’ve made a profit. Hopefully, you’ve been keeping a track of receipts and other papers that you made need if you are ever audited.

If you realize that you’ve been conducting a hobby all long – namely by realizing your not earning an income or profit from it – you can deduct some things on your taxes Schedule A (your 1040 form). Check with you account to help you determine if you can add anything to get a deduction on your taxes and what exactly is considered deductible under the law.

It’s very important to remember to pay any taxes on any income or profit you receive. You can pay them semi-annually, quarterly, or monthly. Filling out the paperwork is easy and straightforward and by making sure you do it ensures that you’re not having a taxation problem further down the line.

About the Author

Jamiel Sharief author of this article on Starting a business. Find more information about Business here.

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