Hobby income

[JG EA]

Things have been crazy, no time to get on the board as often as one would like!

Does anyone have any insight into party plans. A cllient told me that I told her she didn't have to report it because she didn't make any income. So, I probably said something that she took that way and am now going to write up a letter for her to initial or sign that explains her requirements. But I am seriously confused about how it all works. The way she explained it to me she pays more than she gets. I explained hobby income in and only costs of goods out, but we couldn't come to a verbal conclusion on what those two things are.

She pays for, with a special credit card, the products sold at the party (kitchen supplies). She collects the money from the people who bought them. She pays the taxes and shipping on the full amount even if she collects less than the full amount. (I'm assuming that is because she give some of the items"sold" as gifts to friends and family and self.)
She then gets a commission on the money collected. So in her mind - no income, because she paid more than she got.

So would it be Money collected plus commissions as the hobby income?
And Cost of items for which she collected money only plus shipping and taxes on those things only?
And the Packages she buys to show at parties would not be included in any way because it would be a depreciable item or an operating expense and so not cost of goods?
How do you handle?

[Burke]

So would it be Money collected plus commissions as the hobby income?And Cost of items for which she collected money only plus shipping and taxes on those things only?And the Packages she buys to show at parties would not be included in any way because it would be a depreciable item or an operating expense and so not cost of goods?How do you handle?

That is how I would handle it. Although she might have some addl expenses related to the "party." Still, treated as a hobby, only up to the amt of income reported.

[Peachie]

I will try to explain

how I handle my party plan client JG. She actually purchases the merchandise from the company at some agreed upon price (40 to 50 %) and then resells to the public at full price. She does initially make a profit. She also has a COGS because her purchases are part of her inventory, most times, so I complete this section on the schedule C.

Her income of course comes from her sales. I don't allow an OIH because most of the "parties" are held elsewhere. She does withdraw some things for personal use but these are addressed in the COGS. In addition, any supplies she purchases from the company are shown as expenses.

My client keeps up with her mileage to parties and to meetings just as any schedule C T/p would that travels for business. This business is the same as Avon, Mary Kay, etc. It is entered into as a profit making venture.

I hope I'm clear, if not please send a PM to [email]peachie1000@hotmail.com and I will try to help further. Also, IRS has a publication that deals with Party plans. This lady is not doing a hobby as I see it.

Peachie

[joanmcq]

Peachie is correct. The items she withdraws because she is either keeping them for herself or giving to friends are personal and should not be included in COGS or as an expense. She also must make sure to sell the products at full price and -this is the important part--charge the customer for the sales tax and shipping! Very often, people selling on these party plans forget that part, and that is why they don't show a profit.

[taxcraft]

In and Out

I had a person, a church treasurer, say that one income check he gets is used to pay an expense right away. Because its "in and out" immediately he does not record it at all. So this transaction is never recorded. That's not professional accounting. Record both sides even if resulting in a wash.

These small organization treasurers, who are former cashiers at Wal-Mart, think differently.

[spencer]

Hobby Income

Thank you Peachie. I struggle with these things every time they come in.

[JG EA]

That is how I would handle it. Although she might have some addl expenses related to the "party." Still, treated as a hobby, only up to the amt of income reported.

Thanks for the confirmation. The additional expenses wouldn't reach the 2%.So, I'm mainly concerned as to what to put on line 21. So, I've made her a chart to record line 21 information.

[JG EA]

how I handle my party plan client JG. She actually purchases the merchandise from the company at some agreed upon price (40 to 50 %) and then resells to the public at full price. She does initially make a profit. She also has a COGS because her purchases are part of her inventory, most times, so I complete this section on the schedule C.

Her income of course comes from her sales. I don't allow an OIH because most of the "parties" are held elsewhere. She does withdraw some things for personal use but these are addressed in the COGS. In addition, any supplies she purchases from the company are shown as expenses.

My client keeps up with her mileage to parties and to meetings just as any schedule C T/p would that travels for business. This business is the same as Avon, Mary Kay, etc. It is entered into as a profit making venture.

I hope I'm clear, if not please send a PM to [email]peachie1000@hotmail.com and I will try to help further. Also, IRS has a publication that deals with Party plans. This lady is not doing a hobby as I see it.

Peachie

Thanks Peachie. A C in this stiuation doesn't fit . It is really a hobby.