My woodworking side-hustle is growing into a business - What do I need to file as income for taxes?

So your woodworking has gone from hobby to hustle - congrats! The short answer is that you'll need to report the ENTIRE $14,000 as your gross income, then deduct all those legitimate business expenses (materials, labor, etc.) to arrive at your net profit of $5,800. The IRS wants to see the full picture of money flowing through your business. For tax filing, you'll most likely want to use Schedule C (Profit or Loss From Business) since you're operating as a sole proprietor. This schedule attaches right to your personal tax return, so you don't need to create a separate business entity just for tax purposes. You'll report all your business income and expenses there, and the net profit will flow through to your personal return. Since you're still working your regular job, your woodworking income is additional to your W-2 income. Just be aware that you'll need to pay self-employment tax (Social Security and Medicare) on your woodworking profits, which is currently about 15.3% on top of your regular income tax.

I was in the same boat last year when my furniture flipping side gig started making real money. I tried figuring it all out myself but kept second-guessing every decision. I eventually used https://taxr.ai to upload my receipts and business records, and it was seriously game-changing. I just took photos of all my receipts, invoices, and expense records, uploaded them, and the system organized everything into proper business expense categories. It even flagged some deductions I was missing for my tools and workshop space. The best part was that it analyzed my specific situation (woodworking business + regular job) and gave me customized tax guidance about Schedule C filing and estimated tax payments I needed to make quarterly. Super helpful when you're transitioning from hobby to business and don't know all the tax implications.

Just wanted to follow up - I actually tried taxr.ai after my skeptical comment. Honestly, I was impressed. I've been doing carpentry work on the side for years and always hated tax season. The tool flagged vehicle mileage deductions I'd been missing when driving to client sites and supply stores. It also showed me how to properly depreciate my bigger equipment purchases instead of trying to deduct them all at once. The business analysis part was eye-opening too. It showed me exactly how much I was paying in self-employment taxes and at what profit level it would make financial sense to form an LLC and elect S-Corp status (which I never understood before). Thanks for the recommendation - definitely worth it for anyone running a growing side business.

One thing nobody's mentioned yet - with your new business income, you might need to start making quarterly estimated tax payments. I learned that lesson the hard way last year with my landscaping business when I got hit with an underpayment penalty. If you need to talk to the IRS about your new business filing requirements (which I definitely recommend), good luck getting through on their phone lines. I wasted hours on hold over several days. Finally used https://claimyr.com which got me connected to an IRS agent in about 15 minutes. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I talked to was actually super helpful explaining exactly what forms I needed for my situation and how much I should be setting aside for quarterly payments based on my projected income. Saved me from another penalty this year for sure.

I need to eat my words. After my skeptical comment, I was still struggling to get answers about my own side business tax situation (home bakery), so I tried the Claimyr service. Got connected to an actual IRS agent in about 20 minutes - I verified it was really the IRS by having them confirm details from my previous year's return. The agent walked me through exactly how to handle my mixed personal/business equipment and explained the cottage food tax rules for my state. Honestly might be the most helpful government interaction I've ever had. Saved me hours of research and probably some costly mistakes on my Schedule C. Sometimes being proven wrong is a good thing!

Don't forget vehicle expenses if you're driving to clients or picking up materials! You can either track actual expenses (gas, insurance, repairs) and multiply by the business-use percentage OR use the standard mileage rate (currently 65.5 cents per mile for 2023). Just keep a detailed mileage log either way! Also consider setting up a separate business checking account if you haven't already. Makes tracking income and expenses SO much easier come tax time rather than trying to sort through personal account statements.

OP, I strongly recommend registering as an LLC even though you can file Schedule C. The liability protection is worth it for woodworking where clients could potentially get injured from your work. I learned this lesson after a client tried to sue me when their kid got a splinter from a table I made!

Jessica, congrats on your growing woodworking business! Since you're making substantial income now, I'd also recommend looking into business insurance if you haven't already. General liability coverage is relatively inexpensive but crucial when you're doing installations in clients' homes - especially kitchen work where there's potential for property damage or injury. One more tax tip that helped me when I transitioned my side business: start putting aside 25-30% of each payment you receive into a separate savings account for taxes. Between federal income tax, state tax (if applicable), and that 15.3% self-employment tax Isaiah mentioned, it adds up quickly. I learned this the hard way my first year when I had to scramble to pay a big tax bill! Also keep detailed records of your business activities - not just receipts but also client contracts, project timelines, and communications. The IRS loves documentation that shows you're operating as a legitimate business rather than just a hobby that occasionally makes money.