When to go legit?

[lendube]

I'm starting to get quite a bit of business from businesses in my town. I'm getting checks for substantial (to me) amounts. Sometimes it's around $100.00 and shortly I'll be receiving in the neighborhood of $300.00 or even $400.00 from two different businesses. I'm very excited about the fact that I'm constantly getting more work but when do I draw the line and become legit? I'm very much intimidated by the whole idea never having had a business. I know there are many write-off opportunities tax wise. The reason I'm even entertaining this idea is the thought of receiving 1099's at the end of the year. The people I'm doing business with are folks I know and it's all very, very casual. I've also done work for the Booster Club at the high school on a few occassions. Do they automatically 1099? Should I just add 10% to my bills? Should I ask, "Do you plan to 1099?" and then charge accordingly? How small a business can a small business be? I'm sure there are different laws in different states and I should probably start by going to the state and county sites to begin searching for info.

Any opinions? Thx.

[HeyJudee]

Don't know about the income tax rules in the US...but here in Canada there is usually a certain amount a spouse can earn without having to file separately from the other half. It's somewhere around $5000-$6000. So I'd look into that possibility I would think it would depend on your yearly income to make the bookeeping and other "business" deductions worth it. JMO

[Here_Fishey]

You will get a 1099 if you receive over $600.00 from one business. The laws on 1099's and who gets them have changed recently, and the IRS is cracking down on people who report incorrectly. So I would automatically expect a 1099 from any business that had paid you over $600 in the calendar year. The $600 is an IRS set amount, and if you receive $599.99 from a business, you will not receive a 1099 from them.

As for the actual business part, check with your state, county, and city for the regulations, and possibly permitting requirements. Check with your local Small Business Administration office, they will probably be able to answer all of your questions, and even some that you had not even though of. Also check with your local chamber of commerce.

[lendube]

Don't know about the income tax rules in the US...but here in Canada there is usually a certain amount a spouse can earn without having to file separately from the other half. It's somewhere around $5000-$6000. So I'd look into that possibility I would think it would depend on your yearly income to make the bookeeping and other "business" deductions worth it. JMO

Good point. We file jointly and we've found before that when I've worked part-time it wasn't worth it. Slipped us into the next highest tax bracket and in the end I "made" very little money for us.

You will get a 1099 if you receive over $600.00 from one business.

That's what I've been told but dh doesn't even think it has to hit the $600.00 point. It's after that amount that a business HAS to file but they can do it for any amount. Have to check into that.

As for the actual business part, check with your state, county, and city for the regulations, and possibly permitting requirements. Check with your local Small Business Administration office, they will probably be able to answer all of your questions, and even some that you had not even though of. Also check with your local chamber of commerce.

I looked around a bit in the state and county sites. I live in an unincorporated part of the county and found that I don't even need a permit where I live as of 1998. You don't need to file a ficticious name statement if you're using your own name in the business name (which I would) and I wouldn't need an EIN (Employer's Identification Number) unless I have employees. I don't foresee that any time in the future.

Thanks so much you two and I'm still hoping for some other opinions.

[MartySews2]

Lennie, my DH is a state revenue agent & our state has a Hobby Act law on the book that says if one makes $400 a month or more, they are required to have a sales tax number & pay taxes on their sales. You really need to check CA tax laws & those of your county if you live in an unincorporated area. Each state varies in their laws & there is no consistency in the US. Are you selling items or just your skills? That may make a difference. When I did custom bridal sewing, I was only selling my skills & did not have to charge sales tax.
Marty

[Here_Fishey]

Marty is right. You need to check the sales tax laws as well. In Wyoming, you would be required to collect sales tax, even on services. In Alaska, it would depend on where you were. You might not have to collect sales tax, but you would be required to get a state business license and possibly a Borough business license, even for a hobby type of activity.

[LeapFrog Libby]

Lennie, IRS says if you receive as much as $400.00 in a calendar year you have to put the income on a Schedule C form and that goes with your regular 1040 tax return. also you have to pay your own SS taxes on the profit (that is the bottom line of the schedule C after expenses are subtracted from income).That requires a Schedule SE also to be attached to your 1040. You can make any amount you like and there is no limit on how much you can report on a joint return if that is how you file. (of course, it should be because if you file married filing separately, both of you pay thru the nose. I retired after 20 + years of preparing tax returns for people and businesses so if you want more info , PM me and I'll give you my e-mail.. I don't have much knowledge about Ca. tax laws. Your expenses would include any threads and other notions you had to use, and you probably would be able to depreciate part of the cost of your equipment. (percentage of it that is used for business) Of course part of it would be for personal use. Nobody's sewing machine is 100 % business in a home sewing business.You can PM me w/questions if you like. I love Tax work.

[temom]

Ohhh Libby, I've been reading tax codes the last 6 weeks. Sheesh, it gets complicated. I've been reading state tax codes, but my next thing to find out (I'm 95% sure of but need to be 100%) for sure a federal tax question regarding churches and pastoral staff. I seriously hate taxes.

[lendube]

Thanks everyone for your words of advice and your kind offer, Libby. I'm letting it sit for now but may very well take you up on it. Nice to know there's someone professional "nearby" to guide me a bit. Appreciate it very much. Stupid taxes!