Reptile business...

[daniel1983]

.....I am clueless when it comes to business related stuff, and was just wondering this the other day...and another post just reminded me to ask.

When should a 'hobby' herp keeper that is selling reptiles go about forming a proper business? Is there a certain level of income or expense that should be reached first or should this be done right from the start? What benefits would it offer?

If any of you know a good 'starting up a business' site that I can check out to learn a little please let me know. It seems that I have spent all my college years learning how to design stuff and the only business training that I have is preparing budgets, schedules, and estimates for construction projects......I have not learned a single thing about how to run a business or even how to start one.

[Adam_Wysocki]

One of our resident accountants will have to chime in, but I think the cut off between "hobby" and "business" is $1,200.00 in annual income???

Don't quote me on that though.

-adam

[ddbjdealer]

The IRS seperates a business from a hobby is you actually turn a profit in the first three years. If after three years, you still don't have enough income to report, your "business" is then classified as a hobby, and you can no longer take deductions from your "hobby".

[daniel1983]

I need to find an accountant anyways.....having two different jobs and getting married half way though the year really seems to be complicating things for taxes...

[ARamos8]

Ken, help me understand. After three years from ??? when you started taking deductions, losses, etc...

[ddbjdealer]

Ken, help me understand. After three years from ??? when you started taking deductions, losses, etc...

This is quoted directly from TurboTax's "Tax Help"

(When they speak of "This Schedule" they're talking about Schedule C)

What should I consider before I complete my business income and expenses?


Make sure that your business is actually a business and not a hobby.

You can report your business income and expenses on this schedule only if you intend to make a profit. Don't report your income and expenses here if this is a hobby, even if you make a profit from it. In other words, you can't deduct expenses for your hobby simply by calling it a business.

The IRS automatically considers your business a hobby if you show a loss for three or more of the last five years. There's an exception to this rule. Horse breeding or racing are considered businesses if they show a profit in at least two of the last seven years.

If your business is considered a hobby:

- The IRS will not allow you to deduct more expenses than the amount you report as income.

- You must report your income as "Other income" instead of on this schedule.

- You can deduct your expenses only on Schedule A, Itemized Deductions.

[monkeywrench133]

You should form an LLC or corp of some kind NOW. One thing most people forget when they are setting up a small or home based business is Personal Liability. If you're running a business in your name and something goes wrong, YOU get sued. If you've got an LLC, structured properly, and something goes wrong, the LLC gets sued. It will sheild you, and your assets. So I wouldn't wait. Plus you want something in place for taxes before you start making money, not after.

[ARamos8]

Crystal Clear. I got it Ken. So you can't have your cake (losses / deductions) and eat it too (profits from a hobby). Thanks.

[Adam_Wysocki]

You should form an LLC or corp of some kind NOW. One thing most people forget when they are setting up a small or home based business is Personal Liability. If you're running a business in your name and something goes wrong, YOU get sued. If you've got an LLC, structured properly, and something goes wrong, the LLC gets sued. It will sheild you, and your assets. So I wouldn't wait. Plus you want something in place for taxes before you start making money, not after.

The levels of protection afforded by incorporating aren't what they used to be. These days, even executives of traditional corporate structures are being held accountable for their actions in US civil courts. That’s why executive liability insurance is one of the fastest growing sectors of the insurance market.

The "shield" that used to be the us corporation is not as strong as it once was.

Your liability as the owner of a home based business operating as an LLC is really the same as if you were a sole proprietor ship. While the courts are always hesitant to seize personal property, if fitting, LLC status will not stop them.

-adam

[Shelby]

Does it cost anything to form a LLC? Is there something different from a LLC I should consider?

Great thread, Daniel.. I was wondering the same things. I don't expect to turn a profit any time soon, but I would like to be prepared.