Well - I am Canadian but I DO work at an accounting firm, and lots of the basic rules are the same.
Basically, here is how things work. If you are planning on making a profit as a business you SHOULD be making a profit, as was addressed earlier in this thread. It's called a requirement to profit. Now - when doing business you can write off your expenses and supplies, etc... BUT when you do this as a hobby and are not intending, or simply don't, make a profit, then you have no excuse to write off these expenses as it is just that, a hobby. The only way you can use the expenses is if you're making a profit. Makes sense, you shouldn't be able to claim business expenses (and therefore reduce the amount of taxes you owe on income made) if you're not really in business.
Now, the government KNOWS that you won't always be making a profit due to bad business deals, or other circumstances, which is why they allow you to take a business loss, and therefore the tax benefits for those losing money on viable business ventures. However, do that too much, or too long and the gov't will come in and check over your books (through means of an audit) determine that you're not caring out a business with the intention of making a profit and through out all of your expenses, and therefore you will be required to pay full tax on ALL income made.
Yes, you are required to report ALL income ever made, but what kid shows the 10 bucks he made mowing Mrs. Lowdry's lawn? Or if you sold a snake for 100 bucks? However, as the good taxpayers you all are, you should be reporting the 5000 you made in sales last year by selling herps.
I would suggest you discuss this with your accountant (do yourself a favour and make sure you have a designated accountant) to see what you should expense and how much. If you still show a profit over your expenses then you'll probably be fine. You might lose a few bucks on the 'ol refund, but at least some of your hobby income will be tax free! Even if you don't deduct ALL of the expenses you could have... Also, mention to your accountant the office in the home tax shelters you can use - helps to write off some utilities and the computer, etc...
Ok - now for operating names (or as some have referred to it as, doing business as). You don't need to have one of these names registered for you to carry on business in this way. and you can simply be Mr. Sam Wolly proprietor of snake sales. You can EVEN dub yourself "Playing Koi" (a name I like to banter around, but don't feel bad if YOU wanna use it, I won’t be hurt) - But you CAN be held liable for prosecution (sue-age) if you use it as your business name and someone else has it registered. So, do yourself a favour and get it registered - Here in Canada you can just go to a registry and do it, but it might be different in the states, your accountant will help you out with this. Up here, you need to worry about having the name registered nationally versus provincially, how this affects you (though I don't think you need to, if your just mail ordering out of your own state) should be consulted with by an accountant.
Don’t forget sales taxes, another accountant question.
Hmm, so much information to give... Hope this all helps!
Oh - one more thing, make sure that your name doesn't include a business corporation elemtent or else you're saying that you're a busines corporation instead of a propietor... If you called yourself Playing Koi Corporation - that's a no no - unless you registered as a corporation - but DEFINITELY don't do that unless you have discussed this with your accountant.
And, as always, ask your accountant what the legal elements are for corporations.
In Canada they are: Corporation, Corp, Limited, Ltd, Holding, and more that slip my mind at the moment.
In Canada you can still use - Enterprises though - and it always has a nice ring to it.
Let me know if this info has been helpful!!!
THANKS!!
