Hobby Vs. Business (Where's the Line?)

[ItsAllNew2Me!]

My advice about converting a hobby into a business is, don't think you have to do it all at once if you aren't ready for it (with the exception of things like manufacturing a product that requires injection molding or something where there's really no way to do small quantities economically). You can ease into it and gradually increase your volume (and the expenses and complications that come with it) as you're ready. There is no need to bite off more than you can chew - trying to grow too fast is a big reason a lot of startups and small businesses fail. Keep it slow and steady, at a pace you can manage. Heh, just like feeding a baby snake, right? Don't try to power feed and don't feed a meal that's too big and likely to be regurgitated - let your operation grow with you.

There will come a point when you have to make a decision to give up your day job, and that's a big step. If you're lucky, you may be able to do it gradually too - I was fortunate to be able to gradually decrease my hours at my day job over a couple of years instead of having to make the leap all at once. Aside from the financial reasons, it's also hard to go from having a regular routine at a separate workplace, with coworkers you interact with, etc, to working at home by yourself all day every day even if you're basically doing things you enjoy.

I do know something about this, because that's how I started my business, and I'm happy to share my experiences and what I know... but at this point maybe that discussion is best conducted via PM or email, or at least in the Business or O-T sections?

Thanks a lot for all your information Coluber. I will definitely be taking my time with this. Just wanted and idea of where this could go . Also quitting my day job will most likely not happen lol...would be nice though and I don't think I will miss a 9-5 and coworkers as much as some would .

Electronic payments are only reported if they're $20k or more or there's 200 electronic transactions or more.

In regards to income, all income made has to be reported to the IRS.

In the scenario of hobby income, you can deduct expenses UP TO the amount of your income. Meaning, you cannot have a loss. There's also limitations on different expenses but I won't get into that.

Also, you dont file a schedule C for hobby income/expenses. You'd report income as "Other income" on your 1040 return and deduct expenses on your schedule A. The problem with that is, if you don't itemize, you cannot deduct hobby expenses. And that's how the IRS gets you.

Thank you very much for this info Misha! I did not even think about looking at PayPal's policy. It actually is even better than what you posted. According to the site, they only report to the IRS if you meet both the limits of Receiving $20k for goods and services and have more than 200 transactions. These both have to be reached before PayPal gets the IRS involved. Which brings up why PayPal must be very lucrative for some sellers. Also thank you very much for the tax tips and the forms. I am saving all of this information for when I start breeding and it is much appreciated.

PayPal IRS Information:

https://www.paypal.com/webapps/mpp/irs6050w

[Coluber42]

Personally, my definition of an activity that is more than "just" a hobby is one that brings in enough money that you wouldn't really want to just give up that source of income. A hobby that brings in a little extra cash to spend on a night out or a new toy here and there is still what I think of as a hobby. More than a hobby means it's making a meaningful contribution to your household expenses, quality of life, savings account, ability to invest in important things, etc, regardless of what actual percentage it is. (What the IRS considers it is irrelevant there, too)

If your goal is to develop your breeding activities to that point, you should start by at least keeping track of what your expenses are and how much time you're spending. This isn't just because of what you need to tell the IRS - it's because if you want to get something specific out of it, you have to know what's going into it. You are probably not going to cover an entire year's worth of feeders, bedding, supplies, electricity, equipment, etc, let alone paying yourself for the time it takes to feed animals, clean cages, take photos, post classified ads, answer questions from potential buyers, etc, by producing a clutch or two here and there. But if you know what those expenses really are, then you can get some rough idea of how many babies you'd need to sell and at what prices in order break even, make a bit of extra spending money, or substantially contribute to your household income.

Supplies and inputs generally get cheaper with volume; some kinds of labor get cheaper with volume too, but some kinds really don't. Paper towels are cheaper in quantity, but no matter how many bins you have to clean, there is only so fast you'll ever get at cleaning each one.

If you aren't breaking even at first, that's fine; most new businesses require either a growth phase or a big initial investment, or both. But you need to have an idea of what it will take to get to the point of being profitable eventually. If you can't envision getting there (like, you calculate that you need x number of clutches per year, but you just don't have the space to house that many snakes or you can't realistically see yourself with enough time to take care of that many, etc) you will probably be happier keeping it as a hobby that sort of pays for itself or brings in a little fun money.

[ItsAllNew2Me!]

Personally, my definition of an activity that is more than "just" a hobby is one that brings in enough money that you wouldn't really want to just give up that source of income. A hobby that brings in a little extra cash to spend on a night out or a new toy here and there is still what I think of as a hobby. More than a hobby means it's making a meaningful contribution to your household expenses, quality of life, savings account, ability to invest in important things, etc, regardless of what actual percentage it is. (What the IRS considers it is irrelevant there, too)

If your goal is to develop your breeding activities to that point, you should start by at least keeping track of what your expenses are and how much time you're spending. This isn't just because of what you need to tell the IRS - it's because if you want to get something specific out of it, you have to know what's going into it. You are probably not going to cover an entire year's worth of feeders, bedding, supplies, electricity, equipment, etc, let alone paying yourself for the time it takes to feed animals, clean cages, take photos, post classified ads, answer questions from potential buyers, etc, by producing a clutch or two here and there. But if you know what those expenses really are, then you can get some rough idea of how many babies you'd need to sell and at what prices in order break even, make a bit of extra spending money, or substantially contribute to your household income.

Supplies and inputs generally get cheaper with volume; some kinds of labor get cheaper with volume too, but some kinds really don't. Paper towels are cheaper in quantity, but no matter how many bins you have to clean, there is only so fast you'll ever get at cleaning each one.

If you aren't breaking even at first, that's fine; most new businesses require either a growth phase or a big initial investment, or both. But you need to have an idea of what it will take to get to the point of being profitable eventually. If you can't envision getting there (like, you calculate that you need x number of clutches per year, but you just don't have the space to house that many snakes or you can't realistically see yourself with enough time to take care of that many, etc) you will probably be happier keeping it as a hobby that sort of pays for itself or brings in a little fun money.

Thank you for this again. I do plan on it being more of a hobby that pays for itself than an actual full blown business. I love working with reptiles and have quite a few and breeding my own morphs is the next step for me. On top of that mixing it with my IT profession by building a great website makes it even more exciting for me. I just wanted do the research before I got to far into it. I don't want any surprises down the road so I figured I should knock one of the most vague issues out of the way which obviously to me is taxes lol. Thanks so much for your responses. I may have to take you up on you PM\Email offer on more info .