If you have never sold items at a craft fair before you may be led to believe that that there is not much more to than setting up a table and selling your handmade crafts. However, regardless of whether you intend to sell crafts as a hobby or as a full fledged business, you will need comply with and keep abreast of the tax rules that apply to selling at a craft show.
Each person that earns an income is required to pay federal income tax on their earnings. Income is money that comes from any source including amounts made at crafts shows. The amount of federal income tax that you will be required to pay will depend upon your tax bracket or the total amount of income that you make from all sources of employment. Updated tax bracket information can be obtained from the Internal Revenue Service. If you are considered to be self employed, you will be required to file quarterly or estimated taxes based upon your previous quarters earnings. If you maintain employment with an employer that pays employment taxes on your behalf, you may request to have an additional amount withheld from each paycheck in lieu of paying quarterly taxes.
Many states require individuals and businesses that sell items within the state to pay state sales tax. The state sales tax will be a flat percentage rate of the total price of the purchase. The cost of sales tax is generally passed on to the consumer. You can obtain state sales tax information, such as rates, licenses and collection procedures, from your state's department of revenue.
Business Privilege Tax
Many towns and cities require sellers to pay a business privilege tax or obtain a seller's license for the purpose of paying local taxes on earned revenues. Not all locations require craft fair participants to pay a business privilege tax; however, you should consult with the taxing authority in the city, town or municipality in which you will be selling before the craft show to ensure that you are compliant with the local tax rules and regulations.
The IRS allows for the deduction of reasonable business expenses and losses to offset your income. Whether you may take a deduction for these types of expenses depends on how the IRS views your craft selling activities. If you create and sell crafts as a hobby with no real intention of making a profit, your crafting activities will be viewed as a hobby and you will not be entitled to deduct the cost of your materials or craft show set-up expenses. If you intend to sell crafts for a profit, you may deduct your expenses and losses by itemising your deductions on Schedule A of tax Form 1040.