Bookkeeping For Beaders.

Q: It is my understanding that most beaders would operate as small business owners. In this way, there really is no self salary. This complicates things in two ways, for income reporting, you can not really add a cost to the items you make for your labor. This results in an income that is falsely high.

A: I believe that in order to have a labour expense, that the IRS would accept as a cost of your product, you would get all tangled up in declaring that you are not the owner, but self employed. This brings you into the world of employement taxes, a whole other area I cannot see beaders wanting to spend their time on. If I am totally misunderstanding the reality of how this works, I would love to hear more from those of you experienced in this. If your beading is classified as a hobby by the IRS, you must declare your income (minus expenses), but you cannot write off any loss against your regular income. However, you can write off all expenses against the income, so keeping good records is important. If you have a business, then any loss can come off other income, but the IRS`s definition of a hobby versus a business must be met. Not exactly, it would be best for those who need additional information to visit with a local office of the 'Small Business Administration', or ask your personal accountant for a more detailed explanation. Although Federal laws/rules are universal throughout the US, there are also many state laws which can affect you, and to try to address that in a news group might be less than feasible. For the record, a small business owner can/often does have a salary as well, and either way, you end up paying certain taxes. They just give 'em different names. Plus, there is the whole bailiwick of Incorporated v. Unincorporated v. Subs-S Incorporations, and then there is Sole Proprietor v Partnerships... well, you get the idea.