Reptile & Amphibian Forums

i was just curious as to when a hobby becomes a business and needs a tax ID code to be "legal" any info would be greatly appreciated

Adam

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1.1 THAYERI (1.1 added soon)
1.2 SPLENDIDA (1.0 ALBINO/ 0.2 HYPO)
1.3 ALTERNA

0.1 PYXIE FROG
0.0.1 TADPOLES

I'm curious myself as I am not a TAX whiz nor a business man (yet). Just a dedicated hobbyist!!!
Nice grayband by the way!

Zee

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"I am an expert on everything, but I know so little and have so much to learn!" -Carsten "Zee" Zoldy-

I think if you make more than a certain amount you have to report it as income. I don't know what amount is.

As far as I know, you never have to call it a business - creating a business may have tax benefits, though - but if you don't create a business, I think you only need to report income above a certain amount.
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3.0 WC; 0.2 CB L. getula californiae
0.1 WC; 10 eggs (7/11) Elgaria multicarinata multicarinata

If you have a lot of unreported income and the IRS finds out about it you will get into trouble.

However, if you are doing this for fun and lose money every year I do not believe that you need to claim it. Keep in mind that if you do claim the loss as a business loss - the IRS will lose patience with that and will disallow it after 3 years.

On the other hand, you can really save money when you consider that you can deduct EVERYTHING as a business expense: driving to get rodents, to shows, collecting trips, buying stock, etc. You can even deduct the cost of your racks and any computers, cages, etc that you buy for the snakes - though you have to depreciate the equipment over its lifespan and I do not think you can deduct it all in one year. (meaning that if the rack cost $600 and you use a straightline depreciation for 5 years, you have a depreciation expense of $120 per year which will mean about $40.00 less tax burden for that item per year for 5 years).

I personally got a Federal Tax ID number this year and it took about 5 minutes over the phone. Next I registered my trade name (East Coast Colubrids) with the state of Maryland for about $25.00.

If you are gonna be in this for the long haul and you have the confidence in yourself that your business will grow - then why not?
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Peter Jolles
East Coast Colubrids
www.eastcoastcolubrids.com

Thanks for the info, i am a hobbiest, i dont ever plan on making a living off of what i produce it just makes the rent alittle easier and the grocery bills alittle easier, other than that i do it for fun and the appreciation of a few certin kings, i will be making a web site soon, and was just curious if i need to do a tax id......i may do it for the benfits if it seems neccesary, and i do hope to go to the all new england reptile expo in a few years with a booth, so i just wanted to figuer out what has or doesnt have to be done in order to be a hobbiest that sells his final product

thanks

Adam

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1.1 THAYERI (1.1 added soon)
1.2 SPLENDIDA (1.0 ALBINO/ 0.2 HYPO)
1.3 ALTERNA

0.1 PYXIE FROG
0.0.1 TADPOLES

**Keep in mind that if you do claim the loss as a business loss - the IRS will lose patience with that and will disallow it after 3 years.**

Simply not true, I've done it in the past for over 10 years in a row. That is just a myth that keeps getting passed around.

**I personally got a Federal Tax ID number this year...**

Never heard of a FEDERAL sales tax #. I live in Arizona and all we need is a city retail sales tax number and a state retail sales tax number. And they are a one-time fee. You don't have to pay for them every year. This is for in-state sales ONLY. In Arizona you do not charge sales tax when wholesaling your snakes and when you ship them out-of-state. You do have to list these items/sales on your retail sales tax return though. Thet still want to know.

All this varies from state to state. IN THE STATE OF ARIZONA, you MUST have a retail sales tax # if you sell 2 of any item. You do not need it for one time sales. Like if you decide to sell your toaster and car. This is totally independent with reporting it as income.

You need to check locally if you need a Business License. It does vary depending upon what city you live in. For example; when I was doing taxidermy in Prescott Valley I needed a Business License/Home Occupation Permit, but in Prescott right down the road they do not require a Business License for service orientated businesses.

According to the Arizona Department of Revenue you do not need to report any income generated from a hobby. My reptiles fall into that category. BUT the same Arizona Department of Revenue requires me to have a retail sales tax number.

Kerby...

Kerby --- Are you a CPA? The IRS can classify your business as a hobby and will disallow your "business" loss. If you personally have claimed a loss for ten straight years then I think you might be at an elevated risk. In addition, if the IRS decides to - I think that they can revise your tax returns for years past which sets up an ugly scenario.

I never called it a Federal "sales" tax ID number. Kerby, do you not have an EIN after ten years????

Please see the below verbage straight from the Internal Revenue Service's web site:
(http://www.irs.gov/businesses/small/article/0,,id=98350,00.html)
Employer ID Numbers (EINs)

An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online . You must check with your state to make sure you need a state number or charter.

Also from the IRS website:
(http://www.irs.gov/businesses/small/article/0,,id=99239,00.html)

Is it a Business or a Hobby?

It is generally accepted that people prefer to make a living doing something they like. A hobby is an activity for which you do not expect to make a profit. If you do not carry on your business or investment activity to make a profit, there is a limit on the deductions you can take.

You must include on your return income from an activity from which you do not expect to make a profit. An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. You cannot use a loss from the activity to offset other income. Activities you do as a hobby, or mainly for sport or recreation, come under this limit. So does an investment activity intended only to produce tax losses for the investors.

The limit on not-for-profit losses applies to individuals, partnerships, estates trusts, and S corporations. For additional information on these entities, refer to business structures. It does not apply to corporations other than S corporations.

In determining whether you are carrying on an activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

You carry on the activity in a business-like manner,
The time and effort you put into the activity indicate you intend to make it profitable,
You depend on income from the activity for your livelihood,
Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),
You change your methods of operation in an attempt to improve profitability,
You, or your advisors, have the knowledge needed to carry on the activity as a successful business,
You were successful in making a profit in similar activities in the past,
The activity makes a profit in some years and the amount of profit it makes, and
You can expect to make a future profit from the appreciation of the assets used in the activity.
For details about not-for-profit activities, refer to Publication 535, Business Expenses.

I don't live in AZ so I don't know what applies there (I am in MD). Pretty sure you need an EIN though.
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Peter Jolles
East Coast Colubrids
www.eastcoastcolubrids.com

**Kerby --- Are you a CPA?**

Absolutely not, that question is irrelevant. Talk to five different CPAs and get five different answers...I choose to talk to the Arizona Department of Revenue. CPA's think too much of themselves. I would rathter get my information from the source.

**The IRS can classify your business as a hobby and will disallow your "business" loss.**

According to the Arizona Department of Revenue (not the IRS), which is who I pay my taxes to; they gave me the guidelines as to what is a hobby and what is a business.

**If you personally have claimed a loss for ten straight years then I think you might be at an elevated risk.**

That sort of proves my point about the three year myth.....

**In addition, if the IRS decides to - I think that they can revise your tax returns for years past which sets up an ugly scenario.**

Negative, they can audit me just like everyone else, which according to the IRS, they do fewer audits every year. But I'm ready for an audit anyways. But they can't just up and "revise my tax returns". Just like everything else, they have to "prove their case".

**I never called it a Federal "sales" tax ID number. Kerby, do you not have an EIN after ten years????**

At the bottom of my state sales tax returns it asks for a "Paid preparer's EIN or SSN". I just use my SSN, so hence I never have to apply and receive a Federal tax number.

**Is it a Business or a Hobby?**

I meet the hobby status according to the Arizona Department of Revenue, not the IRS.

**I don't live in AZ so I don't know what applies there (I am in MD). Pretty sure you need an EIN though.**

In Arizona it is not something you apply for or are assigned, they just use your SSN as an EIN when you apply for a STATE retail sales tax number.

Kerby...

See below, my commments in ALL CAPS...

Posted by: Kerby... at Wed Aug 2 07:38:31 2006 [ Report Abuse ] [ Email Message ]

**Kerby --- Are you a CPA?**

Absolutely not, that question is irrelevant. Talk to five different CPAs and get five different answers...I choose to talk to the Arizona Department of Revenue. CPA's think too much of themselves. I would rathter get my information from the source.

WELL I THINK YOU SHOULD PICK ONE OF THEM AND LISTEN TO HIM AND NOT PICK WHICHEVER ANSWERS YOU WANT TO BELIEVE AS A HODGE-PODGE OF ADVICE FROM ALL FIVE. REMEMBER - THEY (THE CPA'S) ARE ON YOUR SIDE SO IF YOU ARE DOING STUFF LIKE THIS AND GET AUDITTED- THEY ARE THE PEOPLE THAT REPRESENT YOU IN THE AUDIT.

**The IRS can classify your business as a hobby and will disallow your "business" loss.**

According to the Arizona Department of Revenue (not the IRS), which is who I pay my taxes to; they gave me the guidelines as to what is a hobby and what is a business.

OK - WHATEVER YOU WANT TO BELIEVE - BUT, ULTIMATELY IF YOU HAVE UNREPORTED INCOME YOU ARE SUBJECT TO THE IRS AND THAT IS DIFFERENT THAN THE STATE OF ARIZONA. ARIZONA IS STILL PART OF THE UNITED STATES AND YOU ARE STILL A US CITIZEN; MAKING YOU AND YOUR BUSINESS SUBJECT TO THE IRS (LAST TIME I LOOKED AT A MAP ANYWAY).

**If you personally have claimed a loss for ten straight years then I think you might be at an elevated risk.**

That sort of proves my point about the three year myth.....

OK, YOU ARE PLAYING ROULETTE THOUGH WITH THIS ONE. I READ YOUR POST TO MY BROTHER THIS MORNING (WHO IS A CPA) AND HE STARTED LAUGHING. ACCORDING TO HIM - YOU CAN GET AWAY WITH THIS - AND YOU MAY NOT. THE TRUTH IS THAT YOU MUST HAVE A "PROFIT MOTIVE" THAT THE IRS CAN SEE. IF YOU EVER GET CALLED IN FOR AN AUDIT THE IRS CAN SIMPLY SAY, "NO, THIS IS A HOBBY." AT THAT POINT YOU CAN ONLY CLAIM A LOSS UP TO AND EQUAL TO THE INCOME FROM THE HOBBY. THIS MEANS THAT IF YOUR SALES ARE $1,200.00 FOR THE YEAR AND YOU CLAIM A LOSS OF $5,000.00 - WELL THEN THE ONLY BUSINESS LOSS THAT YOU CAN CLAIM IS FOR $1,200.00. THAT IS A FACT. IF YOU HAVE BEEN HAVE BEEN CLAIMING MORE OF A LOSS FOR TEN YEARS, WELL MY FRIEND - YOU MAY BE IN FOR A RUDE AWAKENING. THEY CAN AUDIT YOU AND THEN, IF THEY SEE THIS - THEY CAN LOOK AT OTHER RETURNS FROM OTHER YEARS. I THINK THE TERM MY BROTHER USED ON THE PHONE FOR WHAT CAN HAPPEN TO YOU IS, "SLAMMED." (THEN HE STARTED LAUGHING AGAIN).

**In addition, if the IRS decides to - I think that they can revise your tax returns for years past which sets up an ugly scenario.**

Negative, they can audit me just like everyone else, which according to the IRS, they do fewer audits every year. But I'm ready for an audit anyways. But they can't just up and "revise my tax returns". Just like everything else, they have to "prove their case".

KERBY, SEE ABOVE. YOU ARE GETTING BAD ADVICE MY FRIEND. I AM SERIOUSLY NOT TRYING TO START A FLAME WAR HERE AND I DON'T WANT YOU TO PUT ME IN A HEADLOCK IN DAYTONA IN A COUPLE OF WEEKS THEY CAN "UP AND AUDIT" YOU WHENEVER THEY WANT IF THEY SEE SOMETHING SUSPICIOUS --- AND THIS IS EASIER TO DO NOW BECAUSE THE COMPUTER SYSTEMS/ PROGRAMS THAT THE IRS USES ACTUALLY LOOK FOR TRENDS AND HAVE 'RED FLAGS' PROGRAMMED IN.

**I never called it a Federal "sales" tax ID number. Kerby, do you not have an EIN after ten years????**

At the bottom of my state sales tax returns it asks for a "Paid preparer's EIN or SSN". I just use my SSN, so hence I never have to apply and receive a Federal tax number.

YES - I THINK YOU ARE RIGHT ABOUT THIS ONE. I THINK THAT GETTING AN EIN IS A STEP YOU DON'T HAVE TO TAKE (BUT SHOULD IN MY OPINION).

**Is it a Business or a Hobby?**

I meet the hobby status according to the Arizona Department of Revenue, not the IRS.

**I don't live in AZ so I don't know what applies there (I am in MD). Pretty sure you need an EIN though.**

In Arizona it is not something you apply for or are assigned, they just use your SSN as an EIN when you apply for a STATE retail sales tax number.

MY BROTHER (WHO LIVES IN fl IS GOING TO READ THIS AND HE WILL DISCUSS IT WITH ME. I DO NOT KNOW THE ANSWER TO THE ABOVE.

KERBY, I WILL BE AT TABLE 708 IN DAYTONA AND MY BROTHER IS COMING IF YOU WANT TO TALK TO HIM. HE IS NOT A PENCIL-NECKED GEEK OR ANYTHING - AS A MATTER OF FACT, HE IS A FORMER MARINE LIKE ME. YOU ARE FORMER AIRBORNE, RIGHT?
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Peter Jolles
East Coast Colubrids
www.eastcoastcolubrids.com

Now it's time to do some homework (NC. style that is).
Good info. Thanks Peter & Kerby . . .

Zee

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"I am an expert on everything, but I know so little and have so much to learn!" -Carsten "Zee" Zoldy-

I'm not gonna be at the Daytona Show...so no hugs.

Advice from the "experts"................ 5 CPA's = 5 different answers. Been there, done that. 5 lawyers = 5 different answers. Been there, done that.

I will still seek my advice from the Department of Revenue. The source.

Cheers.

P.S. And yes, AIRBORNE!

Kerby...

Kerby --- too bad you will not be there.

I have never been before and I can't wait.
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Peter Jolles
East Coast Colubrids
www.eastcoastcolubrids.com

I would love to go but I live in Arizona, so the next best thing is California. I've been to some IRBA shows, but that's it. As a vendor I just do the Tucson Reptile Show.

Kerby...

Just show the IRS the rodent bill that thirty some kingsnakes go through in a months time. Sounds like a Tax break to me, LOL.

Steve

LOLOLOL!!!!! They want the truth?! They couldn't handle the truth about how much these guys eat! We should get gov't relief for our efforts, lol!
Todd Hughes

Adam, is that splendida brown with a black sockhead or my moniter? Good lookin' snake!
Todd Hughes

she is a hypo from 05' i got her from don shores, she has a light brown body with a nice dark brown sock head, here are a few pictures of her and anothe hypo female i have.

Adam

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1.1 THAYERI (1.1 added soon)
1.2 SPLENDIDA (1.0 ALBINO/ 0.2 HYPO)
1.3 ALTERNA

0.1 PYXIE FROG
0.0.1 TADPOLES

I recently acquired a nice w.c. from my area that is chocalate head to tail and looks similar. Nice snakes btw.
Todd Hughes

Are you trying to start a rucous? (How do you spell rucous anyway.) Nice snakes there.

heheh, nah just goofin!
Todd Hughes

It's not just the colors, BUT: Nothing like having a kingsnake around that can dispatch a 4 foot rattlesnake OR an ADULT RAT as if it were a snack!!! That's all them Georgia kingsnakes are good for. . .
Of course if you don't like em' big, get a scarlet king and watch them mighty groundskinks get wrestled up in the deadly coils of the "scarlet fury" and go down in a blaze o' glory!!!
ARR, ARR, ARR . . .!
Ok, ok just havin a lil' fun here. Yes, I like scarlet kings and small milksnakes too. And I enjoy my lil' ol' graybands as well! - RIGHT TODD??? Here's a couple of my lil' kings (Ground skinks have been known to use them as shelter to hide under from predators ,lol)

Zee

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"I am an expert on everything, but I know so little and have so much to learn!" -Carsten "Zee" Zoldy-

LOLOMG, I am dyin' that's funny stuff! Coils of fury!!! Yeah, cut them gbk's in half an send me some! Hurry up and pump those babies up for next year! Are they eating well? I know it will be a while on those girls, but hopefully '07? Probably '08. Send me a pair from both no b.s.!!! Be safe!
Todd Hughes

i claim all my sales deposited in my buis acct. sole proprieter and use my SSN as my official number.
well ive moved and starting over again is this the route i should continue or do you recomment a Buisiness Tax ID# other than a SSN# Chris