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tax question-hobby vs business

updated thu 4 apr 02


Olivia T Cavy on wed 3 apr 02

Hi everyone,

I agree with Sharon's point here that I would define our activities as an
artist more broadly to include all artist endeavors. I'm not a tax
lawyer, I'm a CPA who has an small but active tax preparation business
for the past 19 tax seasons. (It's outside of my day job and although I
enjoy it, it's definitely NOT a hobby. )

The point is that revenue from a hobby is taxed as revenue from a
business. It's only the tax treatment of expenses that exceed the revenue
that differs.

I wrote directly to Jeff and told him that I disagreed with the advice he
heard from the IRS person. I told him:

If you have regular (as compared to one-time) income from ceramics we
are discussing whether you are a business or a hobby, with the profit
motive being the distinguishing factor. Either you're a business or
you're a hobby. Even if you wanted to be a mold-maker "when you grow up"
if you approached your pottery revenue in the same way as someone who
was trying to make a profit would, you can deduct all of your expenses.

BTW I would consider mold-making and ceramics to be one and the same
business for a Schedule C. It is very rare that I would have more than
one Schedule C for an individual unless the activities were entirely
different and completely unrelated. I would consider that you are an
artist and I'd put it all on one Schedule C.

Jeff wrote back to me that he was more concerned with having to pay
social security tax. I told him that even a hobby that makes a net profit
will pay self-employment tax if the profit is sufficiently high. If the
activity is not strictly an investment type activity (called passive
income in tax terms) you will complete Schedule SE after your Schedule C
shows a net profit. If the revenue minus expenses results in a net loss,
there is no SE (self-employed person's social security) tax.


Bonnie D. Hellman, CPA in PA & CO

PA work email:
PA home email: (that's the number 10 in the middle of
the letters)

On Wed, 3 Apr 2002 09:34:53 -0500 Sharon Villines
> > At the same time I've made molds for lots of people. I intend to be
> > potter someday. My mold making is just a way to bring in extra
money. The
> > IRS told me if I intend to be a mold-maker someday the mold-making
revenue I
> > generate now could be reported as business income. However, they
told me,
> > since I intend to be a potter someday my mold-making revenue is just
> > revenue.
> While this appears to be a correct legal interpretation of the tax law
> not a tax lawyer), it also illustrates the lack of understanding of
> artists do.
> Being an artist usually means one has a variety of skills, all of
> relate to one's occupation as an artist. Better to define yourself as
> artist so the umbrella stretches to cover all your income producing
> revenues.
> If you are a creative person, unless an activity has different tax
> applied to it (daycare, farming, etc.) it is best to use a broad
> Otherwise the tax law could be interpreted to say since your
"intention" is
> to be a potter, any clay _sculpture_ you sell is hobby income and
cannot be
> included on a Schedule C.
> Sharon.
> --
> Sharon Villines, Arts Coach
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Bonnie D. Hellman, Pittsburgh, PA

PA work email:
PA home email: (that's the number 10 in the middle of
the letters)

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