Taxes, Topic for Customizers, Commission takers, and Sellers

My father is actually an accountant, so he is preparing for the busyest time of his year! maybe I could ask him what he thinks?

 

Even in my busiest year as a commissionable artist I barely broke even after supplies. A decent airbrushing system is going to set you back $400+ as well as paint ($4+ a color, minimum 5 colors), brushes that have to be replaced fairly often (00 liners don't last too long!), cans of sealant ($10-15 each), shipping supples, eyelashes, gloss, paint thinner, Windsor and Newton brush cleaner, and so on. Assuming the minimum amount of supplies for an airbrush setup, you're in the hole at least $450, and if you charge $25/faceup that would take you 34 commissions before you hit $400 of profit.

EDIT to say, should I be reporting a net income of $0?

 

Yes, any income you make is taxable, and should be reported on your tax returns.

Reselling of a doll (or other doll accessories) would be taxed as a capital gain. The amount you would be taxed is only on the actual income you make on the doll, so you subtract out the amount you paid for it (called the basis) from the amount you got when you sold it. It's even possible to recognize a loss, although you'd have to have other gains to net it against (the sell of another doll for a profit, perhaps?) to see any benefit from it. Your interpretation of 'net profit' as taxable is basically the right one, although you're actually selling yourself short if you report it as self-employment income.

That's because capital gains taxes are less than the tax you pay on your normal income. If you're in a low tax bracket (and all the doll collectors I know seem to be young and broke), there's a good chance you wouldn't have to pay anything, even if you recognize a healthy profit on a sale.

Now, there is a separate (and higher) tax rate for collectables, but the list of things that meet that criteria seems to exclude the dolls. Works of art are considered collectables, but I would argue (to the IRS, at least) that the dolls don't meet that definition.

The money you make on commissions and other services, on the other hand, is definitely taxed as self-employment. File your 'Schedule C', and make sure you report all those little costs (shipping, materials) that you can deduct from your profitability. For self-employment, you do also have to file a separate self-employment tax (it covers the portion of Medicare and Social Security normally payed by your employer, basically).

 

Technically speaking, in the US, most states even really want you to collect sales tax on a yard sale. I am not sure about the sales of second-hand goods, though, on income taxes. It may fall under capital gains if there's a sharp rise in the price, if the doll has appreciated in value.

You're technically supposed to declare all income from things like work-for-hire, though.

 

So... the rule of thumb is to simply report anything you make from your sales, no matter how little, just to be on the safe side? I take it, then, that if you're planning to sell things, then it really is a good idea to keep really good records so that you can report things accurately to the IRS?

 

You do not have to declare income if it is less than $600 in the year.

Unless you make a profit for three years, the IRS calls it a hobby, not a business.

 

Once you start declaring something as a business, and taking write-offs for supplies, inventory, etc., yes, you do have to show a profit in 3 out of 5 years to continue claiming expenses, particularly when you also have a traditional income (salaried job) on the return, or they'll start disallowing things.

And yes, when I was doing a bit of a crafts business, I was told you need to file for $600 and above. You can, of course, start claiming expenses against your regular income, no matter how little the income from your special business, but then that profit timeline comes into play.

 

In the USA, we are creeping up on Income Tax season. In the past, when I have made money on my fiction writing, there have been items I've been able to deduct (paper, postage, office space, etc.). I know many of you have dolls who represent characters in your fiction. If you have sold stories or novels about these characters, have you deducted the price of the doll (if bought in the same year, or depreciated over several years)?

Similarly, for those of you who sell clothes, do custom face-ups, etc., what expenses do you deduct from your doll income?

 

I think you should consult your accountant if it is possible to claim depreciation on the dolls if you declare the derived income and treat the dolls as capital/asset that is part of your business. I think there is no harm in doing that because it can reduce the amount of tax substantially. However, it sounds weird to argue that maintenance/upgrading cost for your dolls (cloths, accessories, faceups etc) are part of operational/depreciation cost to the business of writing novels. You do need to produce the bills. You need to consult an accountant in the US.

Moreover, I suspect that if you sell the dolls after declaring them as investment capital, you may be liable for to pay a capital gains tax if you make a profit from the sale. If you make a loss, you may be eligible for a refund (In Canada). You need to consult an accountant. This is just my unprofessional guess.

 

(Personally, I go see my Tax Guy every year, since he knows everything and I love and adore him; and I've certainly not earned any income connected with my doll, and am not likely to any time soon.)

I'm wondering about people who have earned income connected with their dolls ... for instance, people who sell doll clothes on Etsy or eBay, or who do custom work here through the board. Have any of these folks been able to deduct a "model" doll as a business expense?

 

I am a single mother making...well close to nothing so I get back quite a bit..anyway 2 years ago I participated in a medical study and my dad wanted to add what I made onto my taxes(i got a couple hundred more back from putting the extra income on) he contacted the IRS to see how or even if he was allowed to do it, the IRS said it was allowable under buisness gains. Especially if you do several medical studies a year. I can see being able to deduct things like pastels, msc, postage ect if you make a certain amount from faceup commissions or something like that, you would also have to claim a business on your taxes. You only have to claim this if you make over $500 in the year, and claiming said business makes you at higher risk of being audited

Just some knowledge I've gained over the past few yrs

 

It's always been to my understanding from my mother (who is always keeping up with everything about taxes and always has) that if you don't actually make over $400 it is not necessary to file on it. She does run her own personal business on the side of her salaried job (though she's now retired from that, but has had the side business for over a decade). It is also my understanding from my tax lady that 2nd hand sales (as personal not as a side business) can generally be considered as liquidating your assets (garage sale earnings falls under the same category). I can honestly say with any doll sale I've ever made here on doa I've ALWAYS lost money from what I originally paid. I do faceups and make clothes, and accessories and I've done my math a couple of years to compute that I'm generally spending more on supplies or breaking even on the accessories, make a tiny profit on clothes (but i don't make and sell them often enough throughout a year), and on faceups I do decent profit but I'm lucky if I do enough business a year to get $150 out of it (including deducting my sealant and what few supplies I buy since I have mostly everything).

A very good idea though to keep yourself a good book/folder of receipts and another good recommendation would be to make a profit and loss spreadsheet to keep on your computer. Would give you an idea at the end of the year if you really need to worry about filing or not. Based on what Lord Ravenswood said, if you make a little profit and are in a lower tax bracket it could be worth it to file.

Pretty much this is why I do everything I do for fun above all things not really to turn a profit but it's nice feeling like you're getting more money to put toward the hobby out of something you were able to do.

I have one thing I'm curious about that hasn't been covered because I do the convention circuit and am a pretty avid donater for convention panel door prizes for fun and stuff, but I wonder if I were to take what I mentioned above and set it up as a doll business which I would file taxes for and such and if I were to donate items that I made that I would have otherwise sold with intent for profit, if I was filing as a personal business would I be able to write off donations?

 

$400 is incorrect. It is $600.

I have done independent contractor work in the past and that is the rule. In my profession you tend to bust that fairly quick, but sometimes one involves students who work for much less money and a much shorter period and then the rules come into play...you need not declare if it's under $600, nor does the business who hired you as a contractor need to declare you as they would a full salaried employee.

Consider that a commission is an independent contract when you get down to it. Work from there.