When does it legally go from a hobby to a business?

I'm new to the community and have only had my bps for about a year, but eventually I want to breed on a much larger scale. I've fallen in love with these animals and have gotten a bit caught up in the excitement. My question is, at what point does your breeding go from being a hobby to a business that needs to be legally registered and pay taxes on? I don't plan on quiting my day job for many years, but I would eventually like to dedicate all of my time to it. I've heard varying answers in regards to the legalities of it, and I can't seem to get a clear answer anywhere. If anyone would know, I figure that it would be on this forum.

Well it depends how you define a business.

For example, there is a big difference between a sole proprietor and a corporation.

In Canada you can claim yourself to be a business without doing anything. Infact, if you earn less than 30,000.00 a year you don't even need to claim any of the taxes you charge.

In the USA, I have no idea.

Honestly It is a choice you make (USA)

Technically, the moment you make your first transaction you are already supposed to be a business. Obviously that is not the case though. The point in which you become an official business is when you decide that being one benefits you more than not being a business. For example. By becoming a LLC you have tax benefits and a corporate shield (Meaning no one can sue you but have to sue your business). Which can be helpful if you sell on an extremely large scale, (where you have little contact with the buyer) So honestly. It's all a matter of personal opinion.

Generally, if you have a profit in three out of the last five years, it is a business. The specifics are here:

http://www.irs.gov/uac/Business-or-H...for-Deductions

When you have to pay taxes on your profits.

It depends on your location. In Canada, where I am, you're supposed to pay taxes on any money you make, even if it's $100 but you're not required to be registered as a business until you're making $30,000 or more from it. Laws are kinda dumb here, you're supposed to pay taxes on money made at a garage sale but let's face it; who does that? I don't want to give advice that may be encouraging of breaking the law so I won't add my personal opinion on the subject but let's just say that I didn't make any money off of the clutches I had this year. I did trades for all my 2013 babies, and didn't gain anything in terms of monies from my hobby breeding. If you're advertising as a business and you're putting yourself out there - it's in your best interest to register and pay the taxes. The last thing you want is an audit to rule not in your favor. I'm waiting until 2014 to register and start making actual money transactions.

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Originally Posted by SarWildDog

I'm new to the community and have only had my bps for about a year, but eventually I want to breed on a much larger scale. I've fallen in love with these animals and have gotten a bit caught up in the excitement. My question is, at what point does your breeding go from being a hobby to a business that needs to be legally registered and pay taxes on? I don't plan on quiting my day job for many years, but I would eventually like to dedicate all of my time to it. I've heard varying answers in regards to the legalities of it, and I can't seem to get a clear answer anywhere. If anyone would know, I figure that it would be on this forum.

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You cannot get a clear answer because the requirements vary from jurisdiction to jurisdiction.
You need the info specific to your location on how much you have to make before being required to declare it and have a business licence etc.

For Canadians:

If you have chosen to start your business operations as a small supplier, you basically lose your small supplier status and have to register for GST when your revenue (before expenses) exceeds $30,000 (for sole proprietors, partnerships and corporations).

So if your revenue tops $30,000 in one calendar quarter, the Canada Revenue Agency considers you a GST registrant and you:

have to collect GST HST on the supply that made your revenue go over $30,000;
have to register within 29 days of the day that you made the supply that made your revenue go over $30,000.
If your revenue does not top $30,000 in one calendar quarter but does exceed $30,000 over four consecutive calendar quarters, you:

are considered to be a small supplier over that time and for one month after those four quarters;
lose your small supplier status on the day you make the first supply after this period and have to register for the GST within 29 days of this date.


Information from this site: http://sbinfocanada.about.com/od/gst...egisterGST.htm

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Originally Posted by MarkS

When you have to pay taxes on your profits.

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Which in the US is always the case, even for a hobby. The difference is that business losses can be used to reduce taxable income while hobby losses can not.

This isn't so much a legal question, the answer depends on when the added overhead, time, and expense required to create and maintain a business structure within your state, even just you operating as a sole proprietor DBA "SarWildDog's Herps", justifies operating as a business versus a hobby in your state. You should check your state's Secretary of State web site as it will tell you things like when state sales taxes are due, minimum franchise taxes (even if you show a loss the most states still collect some minimal amount), the annual corporation or LLC filing fees, etc.