Growing woodworking hobby becoming a business - what income to report on taxes?

You'll need to report the entire $14,500 as your gross income on Schedule C, then list all your legitimate business expenses (materials, labor, etc.) as deductions on the same form. The difference (your $5,800) is your net profit, which is what you'll ultimately pay taxes on. Since you're still working your regular job, you'll file both your W-2 income AND your Schedule C on the same tax return. The Schedule C reports your business income and expenses, and the profit gets added to your other income on your 1040. You don't need to create a separate business entity right away. As a sole proprietor, Schedule C is the correct form to use. If your business continues to grow, you might want to consider forming an LLC or S-Corp for liability protection and potential tax benefits, but that's a conversation to have with a tax professional when your woodworking income gets more substantial.

Hey, I was in almost the exact same situation with my woodworking side gig last year! I spent hours trying to figure out all this tax stuff and then I found https://taxr.ai and it was a GAME CHANGER. I uploaded all my receipts and invoices, and the system organized everything into proper business expenses and told me exactly what I could deduct. The coolest part was that it caught some deductions I would have missed - like a portion of my home workshop space, some tools I bought thinking they were just "hobby expenses," and even my vehicle mileage when I drove to pick up lumber. It really helped me understand the difference between hobby expenses (not deductible) vs. business expenses (deductible).

Just wanted to update - I tried https://taxr.ai after seeing the recommendation here and wow! It actually recognized all my handwritten receipts from the lumber yard AND categorized everything correctly. Even found some deductions I didn't know I could take for my workshop space in my garage. The system showed me I was actually losing track of about 20% of my business expenses before, which would have meant paying WAY more in taxes than I needed to. Already planning to use it for next year's taxes too. Totally worth checking out if you're in the same boat with your woodworking business!

Since you're working with clients directly now, you should also prepare for the chance that the IRS might have questions about your new business income. I tried for WEEKS to get someone at the IRS on the phone when they sent me a letter questioning some of my business deductions from my woodworking shop. It was incredibly frustrating until someone told me about https://claimyr.com - they got me connected to an actual IRS agent in less than 45 minutes when I'd been trying for days on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c but basically they navigate the IRS phone system for you and call you back when they have an agent on the line. Saved me hours of hold music and frustration.

Ok I need to eat my words and apologize to Profile 9. I was convinced Claimyr was going to be a waste of time, but after getting another notice from the IRS about my side business income, I was desperate. Used https://claimyr.com yesterday and they actually got me through to someone at the IRS in about 35 minutes. I've literally spent HOURS on hold with the IRS before and eventually gave up. Having an actual conversation with an agent cleared up my issue in like 10 minutes once I got connected. They weren't kidding about the service working exactly like they show in that video.

Something nobody mentioned yet - keep track of your mileage when you're driving to get supplies or meeting clients! I do custom furniture and mileage is one of my biggest deductions. The IRS rate for 2024 is 67 cents per mile for business driving, which adds up fast. There are good apps that will track it automatically for you.

For real tho, dont forget to look into sales tax issues too. Depends on your state, but most require you to collect sales tax on the stuff you make and sell. It's separate from income tax and can bite you if you ignore it.