Licensing for the part-timer

[DC KNIVES]

Thought I would bring up a topic for discussion.When do you think a hobbiest or part-time should get a business #######? Or should he until he makes the step to fulltime?If he attempts to get a ####### considering our current political state and the recent Steve Licata situation, what would you say to explain your type of business?
Many years ago I tried to start a Custom Motorcycle business and was turned down by the city coucil when applying for a #######.It wasn't until I threatened a lawsuit for discrimination that I was granted a #######.It was not the most fun experience but did come out good in the end.So what do you all think? Dave

[Don Cowles]

You don't need permission from the state to get #######d as a business; it is your right. In my location (Michigan), I just went to the county offices where I live, said I was opening a business, registered the name, and was given a tax ID# for filing/reporting income and sales tax.

If you are selling any of what you make, that is what you should be doing.

[DC KNIVES]

I agree Don on what should be done, but many places such as here require a city #######, then a county ####### then the state ID#.Dave

[fitzo]

I have been told (unverified) several times that if one obtains a business ####### and tax id that there is a five year clock within which one must show a profit for tax purposes or the ####### and tax id die. Does anyone know anything about this?

Another thought regarding this is that I am under the (mis??)impression that one can report up to $5000 of "hobby" income a year without having to get into filing business taxes.

[Kelly Carlson]

I suppose state requirements may vary, but in the New England states in which I have done business there is no requirement for any profit at any time. As licensing of many businesses is usually a revenue generation device, I can't see why any state would care whether or not you made a profit. they just want the ####### fees and the opportunity to collect sales taxes (if applicable in your state)
Perhaps the information you were given might have been confused with the IRS guideline that a home business should make a taxable profit after three years, or the I.R.S. may review the business in detail in an effort to declare it a hobby. Note that this is a "guideline" and not a rule - there are some exceptions, such as a 7 year period for some horse breeding, and what appears to be forever for some large corporations.
To paraphrase the general rule, the business must be run as a legitimate business with a clear objective and expectation of making a profit - there is nothing rigid about any specific number of years.
Hobby losses are not deductible, while hobby profits are always taxable. As far as the I.R.S. is concerned, if that $ 5,000 of hobby income is profit, it is taxable and must be reported on your federal tax return, and probably your state return.
If your state has peculiar laws, and/or any of this is a serious concern, I strongly suggest that you talk with a local accountant and/or attorney; enrolled agents are also sources of tax information.

[fitzo]

Thanks, Kelly. It was probably the IRS rules I was remembering, and confusing things. I haven't checked into this in a long time, and I'm at that point where CRS has kicked in!

[PeterAtwood]

Dave, why do you need a business #######? If you do that you are just asking for the town or city to come in and tax all your equipment. Anything used to make knives can be taxed as business property. I would not do this unless there is a compelling reason to do so. But since I am not an accountant or attorney you should check with local requirements.