I'm thinking about selling some original artwork: when does the government start caring about sales tax and income tax and such?

Question

I've been doing some lithographic printmaking as a hobby, and I'm considering selling some artwork I have produced using this process - possibly in person, possibly with an Etsy shop. I'm not sure to what extent (if any) the government will let me get away with this as personal/hobby income, and when I need to register my activities with the government (or register as a business, etc).

Two particular concerns: at what point would I need to worry about collecting sales taxes for the city and state of New York? At what point would I need to worry about record-keeping of each individual sale in order to report the income on my own taxes?

Answer 1

First - get a professional tax consultation with a NY-licensed CPA or EA.

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At what point do I need to worry about collecting sales taxes for the city and state of New York?

Generally, from the beginning. See here for more information on NYS sales tax.

At what point do I need to worry about record-keeping to report the income on my own taxes?

From the beginning. Even before that, since you need the records to calculate the costs of production and expenses. I suggest starting recording everything, as soon as possible.

What sort of business structures should I research if I want to formalize this as less of a hobby and more of a business?

You don't have to have a business structure, you can do it as a sole proprietor. If you're doing it for-profit - I suggest treating it as a business, and reporting it on your taxes as a business (Schedule C), so that you could deduct the initial losses. But the tax authorities don't like business that keep losing money, so if you're not expecting any profit in the next 3-4 years - keep it reported as a hobby (Misc income).

Talk to a licensed tax professional about the differences in tax treatment and reporting. You will still be taxed on your income, and will still be liable for sales tax, whether you treat it as a hobby or as a business.

Official business (for-profit activity) will require additional licenses and fees, hobby (not-for-profit activity) might not. Check with the local authorities (city/county/State).

Answer 2

If you sell through an intermediate who sets up the shop for you, odds are they collect and pay the sales tax for you. My experience is with publishing books through Amazon, where they definitely handle this for you. If you can find a retailer that will handle the tax implications, that might be a good reason to use them.

It looks like Etsy uses a different model where you yourself are responsible for the sales tax, which requires you to register with your state (looks like this is the information for New York) and pay the taxes yourself on a regular basis; see this link for a simple guide. If you're doing this, you'll need to keep track of how much tax you owe from your sales each month, quarter, or year (depending on the state laws).

You can usually be a sole proprietor, which is the easiest business structure to set up; if you want to limit your legal liability, or work with a partner, you may want to look into other forms of business structure, but for most craftspeople a sole proprietorship is fine to start out with.

If you do a sole proprietorship, you can probably file the income on a 1040 Schedule C when you do your personal taxes each year.