Tax/Small Business Question: US

Aurelia

New member
Hope this is the right place to post this question...

So, the overall gist of my question is: at what point does one move from bellydance as a hobby to bellydance as a business?:confused: For the last couple of years I have been teaching on contract with a local college, doing the occasional private lesson, buying dance items (scarves, zils, etc.) wholesale to sell to my students (I don't make much money from this) and performing locally with my dance troupe at fairs and festivals (sometimes with a local band) for not much money. Up to this year, I claimed this income as "hobby" income -- I'm paying taxes on it, but not the self-employment tax. (I should mention that I have a full-time professional non-dance job that is my primary source of income.)

But, demand for my services is growing and we're starting to get paid real money for our gigs, and I sense that 2009 is going to be a year where I won't really be able to call bellydance income a hobby anymore. For those of you in the US who've made the move over to having a small bellydance business, how bad is it, in terms of hassle and taxes and accounting? If you had it to do over again, would you, or would you have stayed at the hobby level? Is there a point at which it's not worth it to make to move to small business? After all, I could always turn down classes or gigs since I don't need the money to survive (although these days every penny really counts!).

I really appreciate any advice anyone is willing to share! :pray:
 

PracticalDancer

New member
One of my teachers touched on this topic in a "business of BD" class she held. The gist of her advice was two-fold: 1) you are starting a business, so take the time to figure out how to structure that business most effectively. She recommended community college courses that would teach you the difference between LLC's, Inc.'s, and all those other ones I have now forgotten about. :( 2) Find a good accountant you can trust to advise on taxes. Ask small business owners you trust and respect (who does your hair? what local restaurant do you favor? got a favorite local store?) and ask THEM who they went to for advise on taxes and business structure. Since laws will vary from state to state, weigh that local advice more than that of someone out of state (like me!).

Hope this helps -- and, good luck! (Hugs)

Regards,

Anala
 

Samira_dncr

New member
I agree with Anala. Get some good local advice. Go meet a CPA...or a few of them. Also realize, that what you've made as a hobby is probably substantially less once you write off true business expenses. As an example, for the Vegas Intensive, it looked like I had a nice little profit during the years it was more of a hobby, but now it is substantially less because I can use my business to pay my cell phone bill, all the printing expenses, my laptop that I purchased last year, etc. I even write off a portion of my mortgage and utilities as I have a home office. The way you run a business is very different from a hobby. It might actually work to your advantage to become a business. You might find you are actually operating at a "loss"...which you can do for awhile.
 

Aurelia

New member
Thanks so much, Anala and Samira -- I really appreciate your advice and input. You're telling me what I think I already knew deep down -- that I need to do more research and get some help from local experts! I'm a little intimidated by financial stuff, but I think I'm interested in pursuing this opportunity.

Thanks again -- you've both been really helpful :D
 

maria_harlequin

New member
I'm not in the US but my advice to you is to take marketing/business/advertising courses. I'm a communication arts major and I'll be graduating this year. Without all of those classes I don't think I'd be where I am right now with my own dance business.

Also you have to take note that the belly dancing biz, while a niche market, is incredibly competitive especially when it comes to all of the nifty things we like to buy. Countries like China and India makes it harder for us to sell high-quality products that are more expensive. Who wants to buy an $80 pair of pants when you can get one for $20? This is assuming that you're going to be selling items. And when it comes to classes, how do you get new people to come to your class and not another teacher's?

Also a rule of business is that you have to be prepared that it might be awhile before you make money...in general the first year you lose money, break even in the second, and finally start making money in the third. This isn't always the case of course but it's a good thing to remember.

Good luck!
 

Jane

New member
U.S. taxes

Clarification: I am not a small business owner, I am an employee.

I have no small business start up advice, but I did itemize my belly dance stuff on my taxes this year. I was able to write off:

my ipod and it's cords
ipod compatible portable sound system
music I purchased
costumes
props
professional travel gas/hotel
shoes
classwear
lessons
workshops
certification fees
videos & books

Save your reciepts and keep good records. I didn't do it this year, but I could have writen off the percent of my house I use specifically for belly dance related things, i.e. costume/prop storage area and dance space. I knew a dancer who kept a snake and wrote off the rats she fed it and the percent of its heat lamp from her electric bill. If you donate a dance performance or lesson to a non-profit group, bill them as a donation and get a reciept. You can write it off as a contribution.

The guy who does my taxes retired from the IRS and is a CPA. He does my husbands and mine, state and federal, for around $500. It takes about two hours and we have a contract that he comes with us as representation in case of an audit. It is worth the money, he has saved us huge headaches and about $2000 a year we didn't know we could get back. The tax laws are horribly confusing!
 
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Aisha Azar

New member
Dance

Dear Auralia,
Last time I checked, the federal government considers that you have to pay taxes as soon as you earn over $600, whether or not you claim hobby or business status. State taxes vary. For example, I do not pay state income tax in Washington, but I do pay sales tax on any DVD's that I sell in state, AND, in Washington, there is not a set sales tax for the whole state, so people pay different taxes, depending on where they are. In your state, it could be entirely different, but the federal thing would probably be the same. It is all ridiculously complicated and stupid. It is also very expensive tax-wise to own a small business, no matter what, and if you too often do not make any money, or not enough, then they want to know why, but at the same time, if you make over that $600, they also want you NOT to claim hobby status. I am surprised that you got away claiming hobby status working at a state institution, though..... I should tell you that I got surprised with a $300 bill, fine and payment due, for not paying my social Security on my taxes. I forgot one year, and they waited for 2 years before contacting me so they could charge me the penalty. I was so pissed off.
Regards,
A'isha
 
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sultan

New member
I think Aisha hit the nail on the head.

As a former IRS agent, I am surprised that people are still confused over the issue of hobby vs business. The government always considered all forms of income taxable, no matter what their source may be. As such, hobby income is (or was, unless the law has changed) taxable. Expenses arising from hobbies were only deductible as miscellaneous expenses on one's 1040 Schedule A. These expenses were limited to the actual income.

By contrast, business expenses from self employment were deductible on 1040 Schedule C.

Years ago, I remember conducting audits where female entertainers would not only deduct expenses such as makeup, but they would also claim depreciation expenses for breast implants or enhancements. Courts have ruled that these expenses are deductible provided that the claimant can prove most ordinary people would not have made such expenditures.

Here is (or was under the old rules) the key to tax deductibility: the expense must be ordinary and necessary in order for you to conduct your business. If you can demonstrate that you would not have incurred this expense but for the fact that it was made in the pursuit of taxable income, then it should be deductible. Keep adequate records to substantiate the cost. I always recommended that people keep a separate bank book/checking account so that the government cannot accuse you of trying to write off personal costs as business costs.
 

Aurelia

New member
Thank You!!

I just wanted to take a minute to thank everyone who responded to my question for their advice. I took the plunge this week and officially registered as a sole proprietor of my own business -- scary and exciting, but it feels like the right thing to do and the right time. I very much appreciate everyone's time and advice!
 
Bell Dance taxes

It's an ideal set up for those of you who belly dance and have a regular job; Claim all your belly dance income and all your belly dance deductions. You can get most all you money back that was taken out of your check at your regular job. Being a belly dancer is expensive lets face it. How many gigs did it take to pay off that Bella costume? Make up. wigs, shoes. lessons, networking events, Rakkasah, OH and your participating in my Belly Dance Retreats in Hawaii is tax deductible as education. So is a trip to Egypt buying costumes and taking lessons. Tons of costume projects that didn't work out are part of the business process.
Artists rarely get what they are worth in job payments yet artist makes all our lives better. These are all legitimate deductions.
Personally I have a tax man like Jane mentioned. He has been with me through an IRS audit and we passed with flying colors.
The state and local taxes are the tricky ones!

My taxes are incredibly complicated. I own a business, perform, create products, host retreats, promote myself and other dancers, create venues as projects for my students plus I work around the clock. At the moment it's 6:15 Am and I'm on this forum net working my place in the market place. It's incredible how many hours we devote to belly dance.
Delilah
 

Samira_dncr

New member
Delilah! It's awesome to have you here. Thanks for posting.


It's an ideal set up for those of you who belly dance and have a regular job; Claim all your belly dance income and all your belly dance deductions. You can get most all you money back that was taken out of your check at your regular job. Being a belly dancer is expensive lets face it. How many gigs did it take to pay off that Bella costume? Make up. wigs, shoes. lessons, networking events, Rakkasah, OH and your participating in my Belly Dance Retreats in Hawaii is tax deductible as education. So is a trip to Egypt buying costumes and taking lessons. Tons of costume projects that didn't work out are part of the business process.
Artists rarely get what they are worth in job payments yet artist makes all our lives better. These are all legitimate deductions.
Personally I have a tax man like Jane mentioned. He has been with me through an IRS audit and we passed with flying colors.
The state and local taxes are the tricky ones!

My taxes are incredibly complicated. I own a business, perform, create products, host retreats, promote myself and other dancers, create venues as projects for my students plus I work around the clock. At the moment it's 6:15 Am and I'm on this forum net working my place in the market place. It's incredible how many hours we devote to belly dance.
Delilah
 

Eshta

New member
I didn't do it this year, but I could have writen off the percent of my house I use specifically for belly dance related things, i.e. costume/prop storage area and dance space.

My day job is an accountant (but in the UK, so different tax laws) and I am about to set up my own practice so have been in intensive tax training seminars lately (oh the joys!)

If you do go about claiming back business use for your home, be careful how you apportion it - if you declare one 'room' as your fixed belly dance space, it may have capital gains implications when you sell your house :shok:! That may be UK only, but worth bearing in mind.

Probably be better to do it based on hours 'working' on your belly dance business from home or another allocation basis...

Disclaimer: please don't consider this advice in a professional capacity in any way shape or form, and of course the US and UK tax system have vast differences between them...!
 
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