I went through almost this exact same situation last year with my ceramic pottery hobby! After doing a lot of research and talking to my state's tax office, here's what I learned: You're absolutely doing the right thing by collecting sales tax. In most states, sales tax is required on tangible goods regardless of whether it's a hobby or formal business - the state just wants their cut of the transaction. For the income reporting piece, you can still treat this as hobby income since $580 from occasional craft fair sales clearly falls into hobby territory. The fact that you're collecting sales tax doesn't change that classification - they're separate tax issues entirely. When you file your taxes, you'll report the total income (including the sales tax portion) on Schedule 1 as "Other Income." Then when you remit the sales tax to your state, you can deduct that payment, so the sales tax portion essentially washes out on your federal return. The key is keeping good records of what you collected versus what you remitted to the state. Most states have pretty simple filing requirements for small sellers - mine only requires annual filing since I'm under their quarterly threshold. Don't stress too much about crossing into "business" territory at your current level. The IRS looks at things like profit motive, time invested, and business-like operations. Occasional craft fair sales of $580 is clearly hobby activity!

I've been dealing with this exact situation for the past two years with my handmade soap business (well, technically still a hobby). What I've learned is that the number of events itself doesn't automatically trigger business classification - it's more about the overall pattern and your intent. The IRS uses what's called the "nine factors test" to determine hobby vs business status. Things like: whether you operate in a businesslike manner, your expertise level, time and effort invested, expectation of profit, success in similar activities, history of profits/losses, amount of profits relative to losses, your financial status, and personal pleasure derived from the activity. For context, I've done 12-15 craft fairs per year for the past two years, making about $2,800 last year. I still classify as a hobby because: I only do weekend events, I don't advertise or have a website, I make soap primarily for my own enjoyment, the income doesn't support my household, and I don't keep detailed business records beyond what's needed for taxes. The key is being honest about your motivations and operations. If you're just doing more fairs because you enjoy it and want to share your husband's work (not because you're trying to build a profit-making enterprise), you're likely still in hobby territory. Just keep good records and be consistent in how you treat it on your taxes!

Code 470 definitely sounds stressful! I'm actually pretty new to dealing with tax transcripts and IRS codes, but reading through everyone's experiences here has been super educational. It's really reassuring to see that most people eventually get their 470 codes resolved, even though the waiting period seems pretty brutal (anywhere from 4-10 weeks based on what everyone's shared). The common themes seem to be income verification, dependent checking, or identity confirmation - all pretty routine stuff even though it feels scary when you're in the middle of it. Really appreciate everyone taking the time to share their timelines and outcomes. As someone who might face this situation in the future, it's helpful to know what to expect and that there's usually light at the end of the tunnel. Hope yours gets resolved soon! 🤞

I'm pretty new to this whole IRS code thing but just wanted to say this thread has been incredibly helpful! Seeing everyone's experiences with code 470 and the timelines (seems like 4-10 weeks is the typical range) really helps set expectations. The common themes of income verification, dependent checking, and identity confirmation make it seem way less scary than when you first see that unfamiliar code on your transcript. Really appreciate everyone being so open about sharing their situations and outcomes - it's reassuring to know that most people do eventually get it resolved even though the waiting is rough. Hope everyone still dealing with this gets some positive movement soon! As someone who might face this in the future, I feel much more prepared now thanks to all your shared experiences 🙏

Anyone know if amending a return from 5 years ago will trigger an audit? I'm in a similar situation but worried about opening a can of worms if I file an amendment.

I really admire your honesty in wanting to make this right. It takes integrity to come forward voluntarily about something like this. One thing to keep in mind is that the IRS has a Voluntary Disclosure Practice that might apply to your situation. Since you're proactively coming forward before any investigation or contact from the IRS, you may be eligible for more favorable treatment regarding penalties. Before filing the amended return, I'd suggest calling the IRS practitioner priority line (if you have representation) or the general taxpayer line to discuss your specific situation. They can often provide guidance on the best approach and may even be able to give you a preliminary calculation of what you'll owe including interest. Also, make sure to keep detailed records of everything - your original childcare payments, the corrected amounts, and all correspondence with the IRS. This documentation will be crucial if there are any questions later. You're doing the right thing by clearing this up, even though it's been several years. Your conscience will feel much better once it's resolved!

This thread has been incredibly informative! As someone who's been struggling with inventory tracking for my small artisan jewelry business ($140K annually), I'm definitely going to look into this small business inventory exception. The mention of Rev. Proc. 2018-40 is particularly helpful - I like having the official IRS guidance to reference. One thing I'm curious about that I haven't seen mentioned yet: how does this work with seasonal businesses? My jewelry sales are heavily concentrated in Q4 (holiday season), so I typically build up inventory through the summer and fall, then sell most of it in November/December. Would the immediate expensing method still make sense in a situation like this where inventory levels fluctuate dramatically throughout the year? Or would the traditional COGS method be better for smoothing out the tax impact? I'm wondering if anyone else here has experience with highly seasonal retail businesses and this election. Also, for those who mentioned consulting with CPAs - roughly what did you pay for the consultation to review this change? Trying to budget appropriately if I decide to get professional guidance on making the switch.

This discussion has been incredibly helpful! I'm a tax preparer and wanted to add some clarification about the implementation process for anyone still on the fence. The small business inventory exception under IRC Section 471(c) is indeed legitimate and can be a game-changer for qualifying businesses. However, I want to emphasize a few key points: 1) You MUST meet the $27 million gross receipts test (averaged over the prior 3 years) to qualify. Most small retailers easily meet this. 2) The election statement needs to be attached to your tax return for the year you want to start using this method. It should specifically reference Section 471(c) and confirm you meet the gross receipts test. 3) While Form 3115 isn't required for this specific change under the simplified procedures, you still need to be careful about the transition year adjustments, especially if you have significant inventory on hand when you switch. For seasonal businesses like the jewelry example mentioned - this method can actually work really well because you're getting immediate deductions for your inventory investments, which often helps with cash flow during build-up periods. The time savings are real - I have clients who went from spending weekends doing inventory counts to just tracking purchases like any other business expense. Just make sure you maintain good purchase records since those become your primary documentation for the deductions.

I'm dealing with a very similar situation and have been going back and forth on this exact question! Reading through everyone's experiences here has been incredibly helpful. One thing that stands out to me is how many people mention their tax professionals missing deductions - that's really concerning when you're paying over $1,000. It makes me wonder if we sometimes assume that paying more automatically means better service. I'm leaning toward trying the DIY route this year, especially after seeing the success stories here. The key seems to be good record-keeping throughout the year rather than scrambling at tax time. For your wife's business, maybe set up a simple system now to track expenses monthly - that alone could make next year much smoother regardless of which route you choose. Has anyone here used the IRS's own resources to double-check their work? I know they have some free tools and publications that might help bridge the gap between full DIY and paying for professional help.

I'm in a really similar situation and have been wrestling with the same question! What really helped me decide was breaking down exactly what my tax pro was actually doing versus what I could handle myself. After reading through all these responses, I'm convinced that $1,150 is way too high for your situation. Even if you have multiple income sources and a home business, that's not exceptionally complex - it's just more forms to fill out. One approach I'm considering is doing a "trial run" with tax software early in the season (maybe FreeTaxUSA based on the recommendations here) and seeing how comfortable I feel with the process. If it seems manageable, great - I'll save the money. If it feels overwhelming or I'm unsure about something, I can still take everything to a professional for a review or full preparation. The other thing that struck me from these comments is how many people found deductions their expensive tax pros were missing. That's really concerning! It makes me think that paying more doesn't necessarily mean better results. Have you looked into what specific services your current preparer includes for that $1,150? Are they doing year-round planning, quarterly check-ins, or audit protection? If it's just basic preparation, you're definitely overpaying.