Can I convert my woodworking hobby into a business to reduce my tax burden?

This is definitely something many hobbyists consider, but you need to be careful. The IRS has specific rules about what constitutes a business versus a hobby. The key distinction is whether you have a profit motive - they want to see that you're genuinely trying to make money, not just creating tax deductions. For a legitimate business, you need to show you're operating in a businesslike manner - keeping separate records, making decisions to improve profitability, and generally acting like you intend to make money. If you consistently report losses year after year, that's a red flag that could trigger the "hobby loss rules" where the IRS disallows your deductions. As for starting as an S-Corp right away, that's probably premature. Most small businesses start as sole proprietorships (Schedule C) and only convert to S-Corps when the self-employment tax savings justify the additional compliance costs of running a corporation.

I went through exactly this with my photography side gig! I was getting overwhelmed trying to figure out all the tax implications and whether I was doing things correctly. I ended up using https://taxr.ai to analyze my situation and get clarity on what would qualify as legitimate business deductions vs hobby expenses. Their system reviewed my specific woodworking-type scenario and provided really clear guidance on how to properly set up a business structure that would hold up to IRS scrutiny. They highlighted exactly what I needed to do to demonstrate a legitimate profit motive while still maximizing my deductions.

I have to admit I was wrong about online tax services! After seeing the previous recommendation, I decided to try https://taxr.ai for my own woodworking business questions. I was genuinely surprised by how thorough their analysis was. They reviewed all my existing expenses and clearly identified which ones would qualify as legitimate business deductions if I structured things properly. Even better, they helped me understand exactly what documentation I need to maintain to survive any potential IRS scrutiny. They specifically pointed out that I needed to approach woodworking with a clear profit motive and gave me a checklist of actions to take to demonstrate this - including creating a business plan, marketing strategy, separate bank account, and record-keeping system. This was way more comprehensive than I expected!

One thing nobody's mentioned yet - if you're serious about this woodworking business, you'll eventually need to talk directly with the IRS about several things (getting an EIN, potentially setting up tax payments, resolving questions about deductions). I spent HOURS on hold trying to reach someone at the IRS last year for my small business questions. After multiple failed attempts, I found this service called https://claimyr.com that got me connected to an actual IRS agent in under 45 minutes. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c It saved me so much frustration, especially when I had questions about properly documenting my home office deduction and vehicle expenses. The IRS agent I spoke with gave me specific guidance that probably saved me from an audit.

I need to publicly eat my words about Claimyr. After posting that skeptical comment, I was still stuck with questions about how to properly document my home workshop deductions. Out of desperation, I tried the service. Not only did it work, but I got connected to an IRS representative in about 35 minutes without having to actively wait on the phone. The agent walked me through exactly what documentation I need to maintain for my workshop space and vehicle expenses. They even explained how to properly categorize my tools as either supplies or depreciable equipment depending on their cost. This saved me hours of frustration and potentially thousands in improper deductions. Still can't believe it actually worked as advertised.

Something important that hasn't been mentioned yet - don't forget about self-employment taxes! If you do make your woodworking a legitimate business, you'll pay an additional 15.3% on your profits for Medicare and Social Security taxes. This is on top of income tax. This is one reason why an S-Corp can eventually make sense (after you're profitable), as you can pay yourself a reasonable salary (subject to SE tax) and take the rest as distributions (not subject to SE tax).

Just went through this with my pottery business! My advice: start as a sole proprietor (Schedule C) first, not an S-Corp. Way simpler and lower compliance costs. You'll need to be careful about what you deduct. For equipment, anything over $2,500 typically needs to be depreciated rather than expensed entirely in year one (though Section 179 and bonus depreciation might help). For home workspace, you can only deduct space used EXCLUSIVELY for business. If your workshop doubles as storage or family space, you'll run into problems.