What kinds of regulations surround "commercial" coral propagation?

[dtruitt]

Our new reef tank has been flourishing. We have 8 different corals (about a 50/50 split of softies and LPS), and keeping them happy has been remarkably painless.

We dont have any aspirations of starting a massively profitable coral farm, but we've got some extra space to set up some cost effective frag tanks and at the rate weve been adding to our tank, we could use a little extra hobby money.

I know a lot of folks will frag their corals and sell them or trade them in for store credit. This is essentially the hope, but I'm curious what kind of additional expenses would be required to set up a small coral propagation "business" the right way. The idea being that running such a "business" could avoid some problems come tax season if we accidentally turn a profit.

I also figure there is some nominal risk of getting in hot water with one federal agency or another if we accidentally profit off of an unlicensed or inspected aquaculture operation. If the cost to becoming a legit coral propagation "business" is low enough, I'd rather do things the right way so we can enjoy that aspect of the hobby without running afoul of federal regulations.

 

[Daddy-o]

Our new reef tank has been flourishing. We have 8 different corals (about a 50/50 split of softies and LPS), and keeping them happy has been remarkably painless.

We dont have any aspirations of starting a massively profitable coral farm, but we've got some extra space to set up some cost effective frag tanks and at the rate weve been adding to our tank, we could use a little extra hobby money.

I know a lot of folks will frag their corals and sell them or trade them in for store credit. This is essentially the hope, but I'm curious what kind of additional expenses would be required to set up a small coral propagation "business" the right way. The idea being that running such a "business" could avoid some problems come tax season if we accidentally turn a profit.

I also figure there is some nominal risk of getting in hot water with one federal agency or another if we accidentally profit off of an unlicensed or inspected aquaculture operation. If the cost to becoming a legit coral propagation "business" is low enough, I'd rather do things the right way so we can enjoy that aspect of the hobby without running afoul of federal regulations.

I am not a tax guy, but if you start it as a business the gov. wants you to turn a profit and if you just do it (and claim) as hobby income, you dont get any deductions and you are taxed on every penny as income. Gotta luv the gov

 

[dtruitt]

I am not a tax guy, but if you start it as a business the gov. wants you to turn a profit and if you just do it (and claim) as hobby income, you dont get any deductions and you are taxed on every penny as income. Gotta luv the gov

I'm not so much worried about taking deductions, so much as I am worried about the possibility of selling enough frags to warrant reporting on my tax return, and then needing to explain that number.

I would probably pay for most of the "business" expenses with "personal" money so I could report a profit, ultimately paying a similar if not larger amount in taxes than if I was doing it all strictly as a "hobby." The concern is less saving money or being profitable, than defraying hobby costs without getting audited or fined.

 

[Dilan Patel]

cash is king lol. Honestly how big are you thinking? I would maybe just trade/sell to locals which is what I do all the time. Allows me to always add new stuff to my tank and help others out.

 

[dtruitt]

cash is king lol. Honestly how big are you thinking? I would maybe just trade/sell to locals which is what I do all the time. Allows me to always add new stuff to my tank and help others out.

I'm not sure, to be honest, which is why I'd like to do things legit. That way, if I get it in my head to build out considerably, I'm covered.

 

[James M]

I wouldn't worry about it unless your making a living off of it

 

[Gareth elliott]

Taxes really do not get too complicated until you start hiring people tbh.

If this is simply an extra cash flow keep records of sales and purchases. And most software these days will track depreciable items for you as well. Its also quite normal your first few years to run a negative profit line.

Where I find it to get expensive and complicated are the employment of others, marketing cost/benefit, and insurance. You want to make sure the insurance policy you have on your home covers losses caused by your small business, if at the same location. And if leasing a site elsewhere, how much insurance the lease requires you to hold.

As an example, whenever I shot a wedding most venues would require I had $500,000 in liability insurance to be able to photograph on their property.

What specific regulations will be heavily dependent on your state laws and how your business is founded. Be it a Limited liability corporation, sole proprietorship, etc.

 

[RandyC]

Tips for taxpayers who make money from a hobby | Internal Revenue Service

Tax Tip 2019-85, July 1, 2019

www.irs.gov

How is hobby income taxed?

How is hobby income taxed? If you have a hobby that earns you income — or that costs you money — you can find the answer to this important question here.

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4 Tax Tips for Money-Making Hobbies - TurboTax Tax Tips & Videos

Many people take up hobbies, like jewelry-making or photography, just for the love of it and don't expect to make money from their efforts. Most hobbies require some out-of-pocket costs. The good news is that the IRS lets you deduct a portion of your hobby expenses on your tax return. But you'll...

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