The Business of Doing Business: Are you a Business or a Hobby?


There has been a lot of talk about pricing. Lots of talk about too high, too low! I think it really comes down to are you a hobby or a business? Having a small business in your home can give you great tax breaks, many great deductions and a loss can be deducted from you other household income.

See these links for more great information:
http://www.nolo.com/legal-encyclopedia/article-30176.html

http://sbinformation.about.com/od/taxes/a/Topdeduction_ga.htm

http://images.businessweek.com/ss/09/02/0217_unsung_deductions/index.htm


How do you know if you are a business? There is the "3 of 5" test, need to make a profit 3 out of the 5 years you are in business. A loss more the 2 years in a row can get you flagged for an audit by the IRS. So if you have a loss on year 3 be prepared to prove you are a business.

See these links for more great information:
http://www.nolo.com/legal-encyclopedia/article-30000.html

http://www.ipowerweb.com/iboost/manage/business/your_business/40004.htm

http://www.bankrate.com/finance/money-guides/turning-hobby-into-business-means-tax-breaks.aspx



Pricing is hard to figure out and there are many formulas. The base to all of them is figuring out your cost. Cost - supplies + fees/overhead + Expenses + your time (wage) = Wholesale. Retails is double wholesale. Most Etsy shops that are making real money/"quite your day job" also do wholesale. Make sure you do your math before engaging is consignment and wholesale ventures.

See these links for more great information:
http://www.whatthecraft.com/arts/pricing.htm

http://artsandcrafts.about.com/od/accountingandpricing/a/priceyourcrafts.htm

http://www.associatedcontent.com/article/301520/how_to_price_your_crafts_for_online.html?cat=35

Hope these tips help you see the difference and help you on your way to having success!

Have a pricing formula or great tax tip add it to the comments to share with others!!

7 comments:

The Handmaden said...

Thanks for this post. I'm definitely a hobby, but would love to be a business eventually. Pricing is so hard as I find if I charge too high I don't sell anything, too low I don't make anything. It's hard to strike a balance.

Dayanara said...

Your little peg people office look better than my office! Are they starting their own business? :)
www.pinponbydayanara.com

Cheryl said...

ditto the first comment... still getting kids through school and a part-time "outside" job so... I'm definitely in the hobby category at this point. But this is great info and I'm going to check it all out... thanks!

cutelittlething said...

very timely for me, great information!

Amanda said...

This is a helpful post! We have a lot to learn & found that pricing things right is really tricky... we want to keep things reasonable and it's hard to put a value on our time too. Thanks for sharing these links!

kat (kats in the belfry) said...

pricing always stumps me.

woolies said...

omigosh so many links. It's too much, I just want to go play with the enchanted beccijo people.
:)

Post a Comment