Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
Batman629
New Member

Expenses for non-taxed income

I’ve recently become a full time independent contractor (I think. I’ve only done a W9 for my new job). I’ve been tracking my expenses to use as deductions. I have multiple sources of income, one being an Etsy shop. I don’t make enough on there to be taxed (I looked up the amount I’d need to make a year and laughed), but can I still use the expenses I have to pay for materials to run that shop as tax deductions on my income from my main job? 

10 Replies
rjs
Level 15
Level 15

Expenses for non-taxed income

I don't understand what minimum income you are looking at. Tax is not calculated separately for each business. If you have enough income from your independent contracting that you have to pay tax, then your Etsy income will be taxed as well, no matter how little it is.


It sounds like you have two distinct businesses. You should enter them as two separate businesses in TurboTax, so you will have one Schedule C for independent contracting, and another Schedule C for the Etsy shop. The expenses for each business go on the Schedule C for that business. But in effect they will offset each other, because a loss in one business will offset profit from the other business. Your tax is calculated on your total net business income from both businesses combined.


Note that even if you don't have enough income to have to pay income tax, you have to pay self-employment tax if your net self-employment income is over $432. And you are required to file a tax return if your net self-employment income is $400 or more.

 

Batman629
New Member

Expenses for non-taxed income

Thank for your reply. Last year, I didn’t even have the option on TurboTax to input the >$200 I made on Etsy, though I wasn’t self-employed with my main job. I’m not sure if I’m going to make even $400 this year, so I don’t know how to report that since Etsy supposedly won’t send me a 1099 unless I make $20k in a year (hence my aforementioned laughter when I saw that number). Unless you’re saying that I wouldn’t need the 1099 and just need to report the total number between the two jobs and not have the reported number match the 1099 I will have? And as far as the original question, too, you’re saying that I can’t put down the paint, for example, that I need to run my Etsy shop in the same list of materials for tax deductions that I keep for my contracting job?

Mike9241
Level 15

Expenses for non-taxed income

if the expenses are for your self-employment work, they are deductible on schedule C.  however, the IRS could consider your activity a hobby if you have losses in 3 out of 5 consecutive years, this is determined by the IRS upon audit. in such a case your income would be taxable but your expenses would be non-deductible.

 

Opus 17
Level 15

Expenses for non-taxed income


@Batman629 wrote:

Thank for your reply. Last year, I didn’t even have the option on TurboTax to input the >$200 I made on Etsy, though I wasn’t self-employed with my main job. I’m not sure if I’m going to make even $400 this year, so I don’t know how to report that since Etsy supposedly won’t send me a 1099 unless I make $20k in a year (hence my aforementioned laughter when I saw that number). Unless you’re saying that I wouldn’t need the 1099 and just need to report the total number between the two jobs and not have the reported number match the 1099 I will have? And as far as the original question, too, you’re saying that I can’t put down the paint, for example, that I need to run my Etsy shop in the same list of materials for tax deductions that I keep for my contracting job?


If you file a tax return for any reason, you are required to report all your income.  The $400 limit for self-employment only applies to someone for whom that is their only income.

 

If you are self-employed, you are required to keep accurate business records of your expenses and income and file a correct tax return, even if you don't receive 1099 forms from clients, payment processors, customers or vendors.

 

If you have two businesses that are separate, you will keep your expenses and income separate and file 2 schedule Cs, one for your "regular" contractor business and one for Etsy.  Keep your income and expenses separate.  You can only combine businesses when they are essentially the "same" business, or close enough that it makes no important difference (similar income streams, similar expenses).  For example, if you sell handicrafts at local craft shows and also on Etsy, that's one business.   If you are a cabinetmaker and you make and install custom kitchen cabinets, and you make and sell small decorative wood pieces on Etsy, that's probably 2 different businesses, since the materials and other costs are likely quite different (postage and packing for Etsy vs. vehicle expenses and helpers for installation jobs for cabinetmaking, for example).

 

If your regular contracting business has a large profit after expenses and your Etsy business has a small profit after expenses, both those totals flow from schedule C to your form 1040 for determination of income tax and self-employment tax.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
rjs
Level 15
Level 15

Expenses for non-taxed income

@Batman629 

You don't need a 1099 to report self-employment income. You have to report all your income, whether or not you get a 1099. The total business income that you report has to be at least as much as the total of any 1099s that you receive, but it can be more.

 


@Batman629 wrote:

Last year, I didn’t even have the option on TurboTax to input the >$200 I made on Etsy


You didn't say what version of TurboTax you used last year. If you use TurboTax Online you have to use TurboTax Self-Employed in order to enter self-employment income without a 1099. You can't enter it in the lower editions. You also need Self-Employed to enter business expenses. In the other TurboTax Online editions you can only enter self-employment income with a 1099-NEC, and no expenses.


If you use the CD/Download TurboTax software, any edition will allow you to enter self-employment income without a 1099, and allow you to enter business expenses.

 


@Batman629 wrote:

you’re saying that I can’t put down the paint, for example, that I need to run my Etsy shop in the same list of materials for tax deductions that I keep for my contracting job?


That's right. The expenses for each business go on the Schedule C for that business. You have to keep them separate, and keep separate records for each business.

 

Opus 17
Level 15

Expenses for non-taxed income


@Mike9241 wrote:

if the expenses are for your self-employment work, they are deductible on schedule C.  however, the IRS could consider your activity a hobby if you have losses in 3 out of 5 consecutive years, this is determined by the IRS upon audit. in such a case your income would be taxable but your expenses would be non-deductible.

 


The difference between a business and a hobby is that a business is an "ongoing trade or business" that is run with a profit motive.  You advertise, seek out customers, and do other things that businesses do.  For taxes, you must report hobby income and can't deduct expenses.  You can deduct expenses from a business.  While the IRS will usually tell you that a "business" that mostly loses money should be reclassified as a hobby (which limits your deductions), that's not necessarily the case and you should look at your intent.  Likewise, if you make a small amount of profit every year, it might still be a hobby and not a business depending on your actual intent and how businesslike your activities are. 

 

Either way, you keep your "regular" business and your Etsy business or hobby separate on your tax return. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Batman629
New Member

Expenses for non-taxed income

Last year, I used TurboTax’s free software because I made significantly less than the cutoff requirement for that program. I will probably make less than the cutoff again this year (that is to say, I don’t make a lot. At all). Is there a way to find a program for self-employment filing that won’t charge me more to purchase it than I will even be charged in taxes?

Batman629
New Member

Expenses for non-taxed income

Thank you all *so much* for your help on this matter. I know virtually nothing about running my own business(es) and I greatly appreciate all of the help I have been and hopefully will still be given in future!! 

rjs
Level 15
Level 15

Expenses for non-taxed income


@Batman629 wrote:

Is there a way to find a program for self-employment filing that won’t charge me more to purchase it than I will even be charged in taxes?


You might be able to find a suitable program in IRS Free File. TurboTax will not be participating in IRS Free File after this year.

 

VolvoGirl
Level 15

Expenses for non-taxed income

Sounds like last year you may have the Free File website and not Turbo Tax Free Edition.  There are 2 different Free versions.  Turbo Tax Free Edition and the IRS Free File website.  If you don't qualify for the Free File website you might be able to use Turbo Tax Free Edition.  Although the Free Edition is limited in other ways.  The IRS Free File website has more schedules (like Schedule C) than Turbo Tax Free Edition.

 

If you need to file Schedule C (and it sounds like you do) You can enter Self Employment Income into Online Deluxe or Premier but if you have any expenses you will have to upgrade to the Self Employed version.

 

How to enter income from Self Employment

https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...

 

You need to enter ALL your income even if you do not get a 1099NEC or 1099Misc.  Just enter it as Other self employment income or as Cash or General income.  You don't need to get a 1099NEC or 1099K.  Even if you did you can enter all your income as Cash.  Only the total goes to schedule C.

 

Here is some general self employment info.

You use your own records.  You are considered self employed and have to fill out a schedule C for business income.   You use your own name, address and ssn or business name and EIN if you have one.   You should say you use the Cash Accounting Method and all income is At Risk.   

 

After it asks if you received any 1099Misc or 1099NEC it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

 

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

 

The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 15.  The SE tax is in addition to your regular income tax on the net profit.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 14 which flows to 1040 line 8a.  Turbo Tax automatically calculates the SE Tax and Adjustment.

 

Here is some IRS reading material……

 

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

 

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

 

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

 

 

Dynamic AdsDynamic Ads
Privacy Settings
v