I have a friend that started selling Paparazzi Jewelry 2 months ago (similar to avon, mary kay, etc only jewelry and hair accessories) In this 2 months, she's made close to a 2000 profit. I'm considering trying this because there is no one else really in my area that does it, and at only $5 a piece, it kind of sells itself. My problem is, that if it is going to screw me in the end with taxes, I don't really want to do it. So what i'm wondering is, does anyone know if you file for this as a small business? I checked the irs website and it was all greek to me because everything kept saying if you don't make a profit in at least 2 of the first 5 years, then they consider it a hobby not a business, so do i not claim it the first year? Super confused and hoping some moms out there have experience with work at home type taxes. Thanks in advance!
Thanks for all the helpful info. I did ask my friend, but as a single student who only started selling a couple months ago, she hadn't really looked into taxes nor was she worried about it. I did consider the fact that other people sell it, but when i said i was the only one in my area, I meant there was no other person in the southern portion of my state and the closest person selling was 2 or 3 counties away, I don't live in the same place as my friend. I appreciate where someone listed the actual resource for the paparazzi site. I googled it, but maybe was too specific in what i wanted to know to find the answer. Still debating actually doing it, but these answers really helped me feel more comfortable with my information. Thanks mommas!
I sell thirty one and I got a form from them that showed what my commission was. I had to report that as income, so I kept track of all my expenses and mileage because you can claim that as well. Just make sure you put enough aside to cover taxes and you should be fine.
Yes, you have to file the taxes as a small business/entrepreneur. You must claim your income, and you can also claim expenses. You cannot claim office space unless the office space is 100 % dedicated to your business. As for the hobby vs business... if you make any profit at all, it is considered a business. The only time it is considered a hobby, is if you have not made a profit that year.
Contact your state for information on your exact situation. Every state is different, I know in Texas, they are very strict, you must report any and all income you receive... hobby or not. You may have to register your business as well:
http://www.in.gov/core/taxes.html
A lot of small business tax questions can be answered here:
http://turbotax.intuit.com/tax-tools/all-articles-and-vid...
http://turbotax.intuit.com/tax-tools/tax-tips/Self-Employ...
A little about the hobby vs business tax:
http://www.brighthub.com/office/home/articles/74050.aspx
A quick google search showed that you make a straight 45% commission on all jewelry sold and you are responsible for claiming all income on your taxes
This is directly from the Paparazzi Policies & Procedures pdf file (which you can google to see):
4.2 Income Taxes
As an Independent Contractor, Independent Consultants will receive a IRS Form 1099 (Non-employee Compensation) earnings statement to each U.S. resident that falls into O. of the following categories:
a.
Had earnings of over $600 paid from Paparazzi in the previous calendar year; or
b.
Made purchases during the previous calendar year in excess of $5,000.
The Independent Consultant is solely responsible for paying local, state, and federal taxes on any income generated as an Independent Consultant. A copy of all IRS Form 1099s that are generated as a result of the criteria above will be remitted and sent to the United States Internal Revenue Service for the applicable tax year. If at any point the Federal Tax Information (name, SSN, EIN, etc.) provided by the Independent Consultant is wrong or contains an error, Paparazzi may hold all future earnings until the error is rectified within Paparazzi’s records and the correction is remitted to the IRS; in these circumstances, pending the severity of error, the Consultant may be subject to be liable for any fines incurred by excessive errors submitted to the IRS.
why dont yo0u just ask your friend whos selling it...
Okay what they are talking about is whether you can claim it as a small business because businesses can deduct a lot more than an individual they can also report a loss that lowers their personal tax liability. Believe it or not the IRS isn't stupid, people would create a small business and run it at a loss just for the tax savings so you must turn a profit in at least two of the first five years and I believe there is also long term tests.
Regardless of how you structure it you must report the income.
Oh for a hobby you cannot deduct expenses against the income, that is why they point that out.
I've not heard of this company.
I personally would contact a tax accountant and ask them. Talk to Paparazzi and find out if they file under 1099 or W2. If it's 1099 - you are considered self-employed and will have to withhold MORE MONEY...because you will have to pay your FICA and Social Security as well.
If it's W2 - then they pay your taxes.
I suspect it's 1099 and you will be considered an independent contractor....that means you will have to keep track of your inventory, mileage, phone records, office space, general business receipts, etc. to be able to write off the expenses and mileage on your taxes....
YOU CLAIM YOUR INCOME!!! You do NOT just NOT file because you didn't make a profit. That's why you need to consult a tax accountant and ensure that you UNDERSTAND what it is you are signing up for...yeah...money is great...but if you lose 35% to taxes every quarter - is it worth it to you?
And keep in mind...having two consultants in the same area selling the same thing? You might have a "full" market and find people saying "I just bought from Jill"....so you will have to expand your horizons...you willing to do that?
