How can I do this with IRS ?

Question

okay .. I just bought 9 t-shirts and then printed on them a nice different logos and art for myself to wear them .. and then some of my friends came over to my house and saw the t-shirts , so they just bought it all from me , Now I sold the t-shirt for $35 and the other 8 t-shirts also sold for the same price .. that mean I got a total of = $280 , I start taking the money and just depositing it to my bank account .. in the 4 month time I sold 400 t-shirts and I had NO what so ever any intentions of making it as business or even selling it .. but people kept bothring me to make it for them .. so one day I got my bank statement and i found out that I got $14,000 my current availabe balance .. I was like (O_o) ..

what I should do now .. do i have to repaort it to the IRS .. and if I do so , how much they will be taking from that $14,000 ?

Answer 1

The IRS classifies your situation under the “Business vs. Hobby” subject area.  To get more information you should refer to their guidelines “IRS Summertime Tax Tip 2007-13” located at:  http://www.irs.gov/newsroom/article/0,,i...

Based on some of the factors listed in their guidelines, I would say you do not have to worry about taxes at this time.  However, if you get audited and the agent wants to nail you they’ll assess a tax and then you’ll spend a lot of time fighting it.  So my advice to you is to keep it low keyed (don’t advertise and act like a business) but keep track of your expenses.

If the IRS determines that your t-shirt hobby is actually a business they will first assess a Self-Employment (SE) tax on your net income.  Net income is the difference between your sales and expenses.  It doesn’t matter what’s left in your checking account.  So if your sales are $14,000 and your expenses are $10,000, then you have $4,000 of net income.  The SE tax rate is 15.3% which means $612 is due to the IRS.  There are some other rules involved so you should consult with a tax advisor to get the whole picture.

If you don’t have any other income (like a job), deductions (home mortgage interest), and you aren’t claimed as a dependent by someone (like your parents) then you probably won’t have any income taxes assessed.  But if you do have other sources of income then the rules get a bit complicated and you should consult with a tax advisor.  Also depending on what state you live in there may be state income taxes due.

But it sounds like you might be in the early stages of building a very successful business.  Check out the story of these T-shirt guys http://www.lifeisgood.com/about/.  You might want to consult with a business planner and get some ideas.

Good luck!