Odd piece (to me) on the Strib opinion page
I wear multiple hats, systems engineer by day, oddball gunsmith by night. The gunsmithing practice has a heavy focus on the aesthetic. It’s artsy, if anything. And I take my payments either through a card processor or Paypal, which is typical of people in the grassroots arts and craft world. You know, people who turn bowls and make doilies and sell them on Etsy.
Anyway, if you exceed $10,000 in payments, you get a 1099-K from your payment people. For some reason or another Paypal didn’t do this for the longest time, but were brought into compliance I believe by PPACA’s tax regime when it was implemented at the end of 2010.
Broadly among Paypal users it caused quite a bit of consternation, with the exact opposite observation of the editorialist here: many people who use Paypal are Ebayers, and they do consider their junk picking and flipping a ‘hobby’.
It’s not exactly that the Ebay antique flippers just didn’t want to pay the taxes on that activity. It’s that as hobbyists, they didn’t think it was a serious enough endeavor that they should have to maintain detailed cost basis’, which is what you need to properly claim an expense on a Schedule C. And I don’t blame them, but with modernity we do have Quicken and Excel. If you hadn’t been getting 1099’d before, you learned how to do a Schedule C now that you were.
I found it easy enough, and I’m reasonably dense. You have income, you have expenses or cost basis. You put them on the schedule C and subtract. There’s your profit, and that goes into your gross income on your 1040. Your status as a hobbyist or pro is immaterial. It’s certainly it’s not a question on the form.
So with the opinion piece here, I know what the mechanical dynamics are. And the big thing is, I’m real sympathetic to tax headaches encountered by the artisan or Ebay flipping schedule C filer. But I’m not sure what the artists are running afoul of such that they get audited, and such that they’re expense deductions are rejected because they are ‘hobbyists’. Only thing I can think of is they claim an expense that exceeds their schedule C income.
If you’re not showing a profit, yes, you’re a hobbyist and you can’t make an expense offset.