Here’s a hard truth, Etsy Entrepreneurs: The Tax Cut and Jobs Act isn’t your best friend. Under the new code, you won’t be able to deduct previously deductible items. For example, you may treat your operation like a business, but the IRS could disagree. And that difference of opinion could prove costly.
New Tax Code Hurts Etsy Entrepreneurs
Straight talk: The new tax code eliminated a bunch of deductions, and unfortunately, many arts-and-crafters who sell on Etsy and elsewhere may find themselves owing more 2018 taxes.
For years, people have been able to deduct hobby expenses, up to the amount of hobby income — but no longer. The Schedule A itemized deduction list eliminated “hobby losses.” However, all income gained from the hobby must be reported.
So now, to claim deductions, you now must convince the IRS that you’re an honest-to-goodness business.
How, you ask?
Well, the IRS looks at several factors when determining an operation’s classification as hobby or business.
- Do you keep accurate and professional books? If not, the IRS is less likely to consider you a business.
- Do you use your books and analytics data to make decisions about your operation? If you can prove that you do, the IRS is more likely to consider your operation a business.
- Do you participate in industry trade shows and conferences? If so, this bodes well, as the IRS will be more likely to consider your outfit and business, entitled to the appropriate deduction allowances.
- Do you spend time researching things that affect your operation? If you want to be a business, you should!
- The last IRS business qualification test is a doozey. Believe it or not, the IRS actually considers if taxpayers enjoy what they’re doing! We kid you not! The Service questions: “Does the activity lack elements of personal pleasure or recreation?” And yes, if you actually love what you do, that may work against you! So, ya know, scowl more when you work! And take selfies!
Connect With An Online Business Tax Lawyer
The Gordon Law Group is a big fan of Etsy entrepreneurs. We relate to, and respect, your passion and drive. So to help out, we want to swat Uncle Sam away from your wallet. You put in the hard work and deserve to keep as much profits as possible.
We’ll review your operation and develop a plan that conforms with the IRS’ definition of a business to make sure you can claim deductions. We can also look at other ways to reduce your tax liability.
Let’s chat and see how we can help you navigate the new tax code.