#989727 - 07/27/04 08:59 PM
Do I need to pay some sort of tax? Help
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aroneous54
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Registered: 02/01/04
Posts: 58
Loc: Northampton, MA area
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Hi all. I have a little studio in the basement of my house and record bands for money here and there. Do I need to pay taxes on this money, and/or register this as a business? We are talking less than $4000 a year of income. Any info and help would be much appreciated. Thanks!
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#989728 - 07/27/04 09:40 PM
Re: Do I need to pay some sort of tax? Help
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bdbklyn
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Registered: 04/04/01
Posts: 1035
Loc: Los Angeles,CA,UNITED STATES
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Hard question to answer without knowing where you live. Laws vary state to state and even city to city in the U.S. I would assume that the income tax auditors would just be giddy if they found an extra $4,000 of income that you didn't declare on your tax return. I wouldn't suggest incorporating at that level but you should get a business license or at least apply for a dba (doing business as).
I suggest that you comtact your local Chamber of Commerce concerning business licences, sales tax resale certificates and such.
On the other hand, certain areas have provisions that prohibit operating certain businesses from your home entirely.
I would suggest that you comply with all local state and federal ordinances. Taking a chance that you're "flying below their radar" may not be worth it.
bill
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#989729 - 07/27/04 10:04 PM
Re: Do I need to pay some sort of tax? Help
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aroneous54
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Registered: 02/01/04
Posts: 58
Loc: Northampton, MA area
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ok. I live in Massachusetts. Do you think if I get an accountant, they would be able to help?
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#989730 - 07/27/04 10:39 PM
Re: Do I need to pay some sort of tax? Help
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aroneous54
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Registered: 02/01/04
Posts: 58
Loc: Northampton, MA area
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what i read is that you can claim "hobby" income on your tax return. A hobby is something that you don't do to make a livable profit. If you do however make a profit from your hobby for 3 out of 5 years supposedly you then have to consider it a business.
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#989731 - 07/27/04 11:19 PM
Re: Do I need to pay some sort of tax? Help
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daddyelmis
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Registered: 04/09/02
Posts: 704
Loc: USA
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If you do this "on the side," then hobby treatment is where you're at. Any expenses with a hobby are only deductible against income from the hobby. Any net income is reportable as hobby income on your tax return (taxable as ordinary income).
You would be unlikely to need a business license for a hobby activity, and you would not likely violate zoning ordinances in your neighborhood because you are not running a "business" as defined by the tax code.
Regarding incorporation or an alternative (i.e., forming an LLC), this will be driven more by liability issues than tax issues at this level.
This activity in your home could screw up your homeowner's insurance for your recording equipment, and if anyone got injured while recording in your home studio.
If you know a decent corporate attorney and cpa, discuss this with them. The bigger issue is your homeowner's insurance, and I'd talk to your agent to make sure you're covered (you don't want to find out you're not after the accident or loss).
_________________________
http://www.ruleradio.com "Fame is like death: We will never know what it looks like until we've reached the other side. Then it will be impossible to describe and no one will believe you if you try." - Sloane Crosley, Village Voice
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#989732 - 07/28/04 12:09 AM
Re: Do I need to pay some sort of tax? Help
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miroslav
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Originally posted by daddyelmis:
This activity in your home could screw up your homeowner's insurance for your recording equipment, and if anyone got injured while recording in your home studio.
If you know a decent corporate attorney and cpa, discuss this with them. The bigger issue is your homeowner's insurance, and I'd talk to your agent to make sure you're covered (you don't want to find out you're not after the accident or loss).
The minute you start charging money...regular homeowners insurance, in most cases, will NOT cover your gear...or liability.
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miroslav - miroslavmusic.com"Just because it happened to you, it doesn't mean it's important."
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#989733 - 07/28/04 11:28 AM
Re: Do I need to pay some sort of tax? Help
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Kris
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Get a good accountant... If you have a day job and spend a bunch on gear, you may be due a nice tax return...
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#989734 - 07/29/04 07:41 PM
Re: Do I need to pay some sort of tax? Help
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zeronyne
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Registered: 05/16/03
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Loc: Chicago/NW Indiana
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I second the accountant route. And you don't need to incorporate or anything like that...you can declare it a sole proprietorship and not have to document anything except on your taxes.
I've been doing this with my home studio for years. The writeoffs on my gear are stacked up for years, as my income generated does not equal the amount spent on gear annually. So all of the income I make off the studio is negated by the gear.
In my case, this makes sense because my adjusted income is a hair away from the next bracket.
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#989735 - 07/29/04 08:29 PM
Re: Do I need to pay some sort of tax? Help
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daddyelmis
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Registered: 04/09/02
Posts: 704
Loc: USA
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Originally posted by zeronyne:
I second the accountant route. And you don't need to incorporate or anything like that...you can declare it a sole proprietorship and not have to document anything except on your taxes.
And just to clarify, you are not a sole proprietor unless this becomes a "business" rather than a "hobby." There's a separate form for hobby income/expense; the Schedule C is for business income expense (i.e., sole proprietorships).
I hate to be the voice of gloom, :rolleyes: but good people can get their lives ruined -- if a speaker/equipment falls on a client during a session, breaks his hand (assume he's a guitarist) and he claims his livelihood is gone, and your homeowner's insurance doesn't cover you because they say you're conducting a business, AND you are sole proprietor -- you could lose your house, car, bank accounts, etc. in the event of a successful verdict.
Go see the cpa and attorney after you call your insurance agent.
_________________________
http://www.ruleradio.com "Fame is like death: We will never know what it looks like until we've reached the other side. Then it will be impossible to describe and no one will believe you if you try." - Sloane Crosley, Village Voice
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#989736 - 07/31/04 10:46 AM
Re: Do I need to pay some sort of tax? Help
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RG203
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Registered: 12/24/02
Posts: 263
Loc: Houston, TX
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Check out this site for information on income tax in Massachusetts:
http://www.dor.state.ma.us/business/taxguide/toc.htm
I would also go the S-corp or LLC route, for the reasons stated above.
As for getting a tax accountant, that is tough call. If you are really unsure about it, do it for one year just to see what the tax person does to prepare you tax filing. That way, you will have the issues identified and you should be able to do it yourself next year by looking at the return that was prepared by the tax accountant. I would only use a tax accountant on a regular basis if the business makes a lot of money, or if it’s not worth your time to do it yourself.
Also, what deductions did you use in calculating the $4,000 of income? A lot of people are not aware of all the deductions that are available to offset income.
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