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