Even before the pandemic, a majority of U.S. households had a hobby that involved making a product, from artwork and furniture to knitting and crafting, according to Petra, a national distributor of consumer technology.
And some of those hobby products are purchased by friends, family, and strangers. But do those sales mean your fun pastime is actually a business?
INCOME TAX INFORMATION
The South Carolina Department of Revenue (SCDOR) and the IRS offer the following information to help you determine if you should treat your hobby as a business for Income Tax purposes.
Here are some indicators that you may have a business:
- You carry out the activity in a businesslike manner and maintain complete and accurate books and records.
- You put time and effort into the activity to show you intend to make it profitable.
- You depend on income from the activity for your livelihood.
- You make changes to your methods of operation to improve profitability.
Here are some indicators that your activity is more of a hobby:
- You have personal motives for carrying out the activity such as general enjoyment or relaxation.
- You have enough income from other sources to fund the activity.
Keep in mind, none of the indicators are more important than others, according to the IRS. All factors, facts, and circumstances must be considered, but not all must apply. Find more hobby vs. business indicators at IRS.gov.
When filing your Income Tax return, note:
- If you receive income from an activity, you must report the income you receive on your tax return – even if you have no intention of making a profit.
- You cannot claim a loss on your Income Tax return for a hobby.
Regardless of whether your activity is a business or hobby for Income Tax purposes, you may still need additional licenses to operate:
- You may need to apply for a local business license. Find more information on that process on the South Carolina Business One Stop's website at scbos.sc.gov.
- You may need to apply for a South Carolina Retail License.
Determining if you need a South Carolina Retail License
You need a South Carolina Retail License if:
- You're selling tangible personal property at retail in South Carolina.
- You're selling items at a retail event at which no admissions fee is charged.
Note: All Retail License holders in South Carolina must collect and remit Sales Tax.
You do not need a South Carolina Retail License if:
- You sell your hobby creation at a yard sale, as long as your yard sales are no more than once every three months.
- You sell your items at a special event at which an admissions fee is charged and you are not selling more than once every 24 months or at multiple locations in the state.
If you only sell your products at craft shows and festivals, you may be eligible for an Artist & Craftsman License, instead of a standard Retail License.
For more information from the IRS on the difference between a hobby and a business for Income Tax purposes, visit IRS.gov.
To learn about starting a business in South Carolina, visit scbos.sc.gov/starting.
For more information on South Carolina Retail Licenses, visit dor.sc.gov, and visit dor.sc.gov/event-guide for information on selling at events and festivals.
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