# When does a hobby become a business?



## Rather-b-beekeeping (May 7, 2011)

Hi Folks,

I would like some input from you guys on when to determine that a hobby is becoming a business? I have about a dozen colonies and about twenty nucs currently. Up until now I have just sold honey to friends and family and some queens (30-40) and nucs here and there. I have had my bees state inspected for legal sale, but that is about it. This past summer, however, I started to have an increased demand for queens and nucs. So, I'm thinking that I should become more official and also look into writing off my equipment costs etc on taxes. Where should I go from here? Business license, website, logo, business name? I don't want to spend a lot of money for a backyard hobby, but I would like to take the necessary action to be legal and it would be nice to be able to write off expenses.

Thanks for input!


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## odfrank (May 13, 2002)

Business license said:


> I don't know why in the beginning you would need any of those until you really want the business to grow. I doubt your municipality licenses tiny backyard sole proprietors, but maybe they need the money and will tell you to get a license if you ask. You can show bee/honey income and expenses on your taxes for a few years even if it isn't showing a profit.
> Those above items are all "overhead", which will come out of "gross profit", lowering "net profit". I am in the landscaping business for 40 years now being quashed out by black market Mexican "businesses", and believe me, things like that are the last things they get. They fly by the "no insurance, no licenses, no taxes, no overhead, used trucks" business school.


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## Rather-b-beekeeping (May 7, 2011)

Thanks for the input! I need to check into what my county requires, but I'm with you I don't want to spend a great deal for a hobby that is just generating marginal profits. One of the main reasons I have begun selling queens & nucs is just to help cover some of the overhead. My wife isn't to fond of me spending too much out of our regular finance budget, which is quite easy for me to do..........LOL! So, it has encouraged me to make my hobby somewhat profitable.


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## BeeTax (Dec 27, 2011)

By the letter of the tax code, every penny of anything you sell is income to be reported on your tax return. You can deduct expenses for a hobby but they are reported on Sch A, so if you can' t itemized, no expenses are allowed. You also can not deduct more than the amount of your income. Most people with hobby income, therefore do no report it until they are caught

A business can deduct losses greater than income, which can be used to offset income from other sources. To meet the IRS requirements to qualify as a business you need to have a "profit motive," keep clear and accurate records of income and expenses, generally have a separate checking account and not comingle personal funds. If you are showing a large enough loss, especially for a few years, you may be required to show that you really had a profit motive, such as were you dependent on the income from the business, and have you successfully run a business in the past.

This is just the federal requirements, and many states have issues of their own. I'm not telling you not to do it, just to be sure that you do it right if you do. I can't tell you how much time I have spent with small business clients who started out without doing it right only to be grilled by the government a few years later, and have penalties and interest much greater than the taxes owed.

This is not intended as tax advice as that would be very dependent on the circumstances at hand, it is merely intended to make you aware that you should become informed of applicable tax laws.


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## Keith Jarrett (Dec 10, 2006)

Rather-b-beekeeping said:


> I would like some input from you guys on when to determine that a hobby is becoming a business?


a hobby is when a beekeeper just runs bees
a business is when his wife gets a real job to support his bees.


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## jim lyon (Feb 19, 2006)

BeeTax said:


> If you are showing a large enough loss, especially for a few years, you may be required to show that you really had a profit motive


Informative post BeeTax, though possibly not as informative as Keith's  Profit motive huh? Reminds me of a conversation I once had with an insurance adjustor. I asked him how you differentiate between the person who is stupid enough to keep his solvent soaked rags next to his gas water heater and the person who intentionally seeks to start a fire by the same means. He said "we insure stupidity but not criminal behavior, though sometimes it is hard to tell the difference"


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## BeeTax (Dec 27, 2011)

So true!


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## Rather-b-beekeeping (May 7, 2011)

Well folks, that is about as clear as mud......LOL! Thanks for all the input! Good story Jim! Thanks BeeTax for the detailed info! Now I just need my wife to fully support my hobby !


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## G B (Nov 6, 2009)

But its not a job if she is selling our own honey is it:scratch: Cause thats my story and Im sticken to it...



Keith Jarrett said:


> a hobby is when a beekeeper just runs bees
> a business is when his wife gets a real job to support his bees.


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## Rather-b-beekeeping (May 7, 2011)

LOL......too funny!


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## EastSideBuzz (Apr 12, 2009)

BeeTax said:


> You also can not deduct more than the amount of your income. Most people with hobby income, therefore do no report it until they are caught


I agree with most of the post. You can income average several years and cover you losses of more then your income. I think this applies. I would consult a tax attorney or accountant. You should be expense your equip etc and report your sales of honey etc. Do a Scheule A as recommended. I do a Schedule F on mine and rezoned my property as Farm and that saves me 3500 a year in property taxes. Do your homework. You need to help off set what you are doing for the planet by having these creatures. Good luck. talk to an accountant not an HR block kind of one but, a real one. It will be the best investment you have made.


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## sqkcrk (Dec 10, 2005)

Records, expense and income records. That's what counts as business. Keep track of your income using a receipt book. You can get ones printed cheaply or just get the blank ones from Office Max or where ever. Keep all receipts on everything you spend money on directly related to your bees and beekeeping business. 

I would fill out a "Profit or Loss From Farming" form and take it to my Tax Preparer and see what they say.


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## Rather-b-beekeeping (May 7, 2011)

Thanks for the input! I'll definitely begin to closely track income and expenses and look into the "Profit or loss from Farming." I also will look into the schedule A and schedule B options.....


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## BeeTax (Dec 27, 2011)

EastSideBuzz:

I agree that filing a Schedule F farm return can have different rules apply than one with a hobby filing their expenses on Schedule A.

The main point of my message was for most small business people, farmers included, you can get in over your head quickly with the IRS. I am a tax accountant and I would advise everyone to spend as much time finding a competent professional that will keep you straight as you spend finding good queens or spend on other critical aspects of your operation. There are many out there who will teach you and help you, but there are also a lot who are lazy or incompetent.

One of the first red flags I would use - if you don't know much about bookkeeping and taxes and he agrees with the way you have been doing things, I would look somewhere else.


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## Rather-b-beekeeping (May 7, 2011)

Thanks BeeTax!


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## Littlestinger (Apr 21, 2011)

BeeTax said:


> You can deduct expenses for a hobby but they are reported on Sch A, so if you can' t itemized, no expenses are allowed. You also can not deduct more than the amount of your income. .



Just to clarify, you can deduct hobby expenses to the extent of _hobby _income. You cannot deduct hobby expenses if you have no income from that hobby, although it would be nice!


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