"Am I a business?"
It sounds like a silly question, doesn't it? Maybe you sell things here and there at craft fairs, or only take a gig every few months...It can get a bit confusing. Especially because every state has their own laws for businesses. Some states have "hobby laws" as far as taxes are concerned. If you are in a state that has a hobby tax law, that does not mean you are not a business in the eyes of the IRS nor does it mean you do not have to register or incorporate your business. We'll get back to these...
The IRS is who determines if you are an actual business or not - no one else, and that includes your state. The IRS has a set of guidelines that they use to determine if you are a hobby or business. You only have to meet one item on the guideline list to be considered a business.
To view all of the guidelines head over to the IRS website
Some of the guidelines are as follows:
Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
Whether the time and effort you put into the activity indicate you intend to make it profitable.
Whether you were successful in making a profit in similar activities in the past.
As you can see the guidelines are very basic and won't leave you confused. If you have been asking yourself this, chances are you are a business and have been for some time. Now, back to incorporating your business...we now know that the IRS is the only one that "determines" if you are a business or not with their guidelines, so if you have been going off the fact that your state says you only have to pay taxes if you make $4k in profits and say you would be classified as a hobby doesn't mean anything. Well, obvs it means something to your state, but that is solely for your states tax requirements. That does not exempt you for the legal requirement to register your business.
So, if you just learned that you are considered a business and have yet to do the legal work, be sure to get on that asap. You may be feeling a lot of emotions right now - 'taxes, income, capital, profit, business bank account, legal forms' but this is what you have been wanting for yourself, your dreams, your goal, your passion. Be happy that you are a "real business"- change your mindset. Owning and operating a business can be very stressful, but try being thankful and appreciative of the hard things. Registering your business makes you the REAL deal, gives your clients confidence in you as a business, gives YOU confidence that you are TRULY doing this and living your DREAM!
Mindset is everything. If there is one thing I've learned since becoming a business owner is that you have to do just as much, if not more, personal work on yourself as a person to be successful. Be thankful for those damn bills for your business, it means you are able to do what YOU want to do, be thankful that you have a website that can be a hassle to update, it means you have a place where potential and current clients go to connect with you and get an idea of who you are.
Now, since we know you are not a hobby, start acting like a business owner (because YOU ARE) and handle all of the business things you've been putting off. Register your business, buy your website policies and contracts, market your amazing self! Do all the things! You got this!
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