I’m retired, and in the past few years I’ve taken up painting. This hobby has begun bringing in more money than I expected. I was wondering at what point I should start thinking about separating my art money from my personal finances, and look at officially starting a little business.
I’d do it now. A hobby that makes money is called a business.
Hearing this is scary to some people, but starting a small business doesn’t have to be complicated. You can go to your bank, and using your Social Security number, open a sole proprietor checking account. Title the account with your full name, then DBA — doing business as — and the name of your business.
All your art income goes into that account, and any expenses paid where your painting is concerned comes out of that account. After the income goes in, and the expenses come out, what’s left is profit. That’s what you’ll end up paying taxes on. Also, you’ll be required to do quarterly estimates and send them to the IRS if you make more than $640 in a quarter. Always remember to always hold back 25 percent for taxes, too, in a separate savings account just for this purpose.
This is really cool, Pat. I think you’re on the verge of being very successful!
Follow up for peace of mind
I’ve been following your teachings for a while, and I’ve noticed you advise people to get things in writing when dealing with creditors. Usually, it seems like you’re talking about credit cards and things like that when this is mentioned. I finally made my last student loan payment the other day. Do you think it would be a good idea to request a formal statement saying my student loan debt has been completely paid off?
Following up on paid-off debts is always a good idea. It wouldn’t hurt to write, and request formal, written confirmation that everything is paid in full. You can do this through email, so you’ll have a record of contact, or you can send a certified letter — return receipt requested — through the postal system. That way, you’ll have a record they received the letter and signed for it.
It sounds like you spent a lot of time paying off your student loans. After an experience like that, you don’t want to have to deal with greedy or dishonest collectors hounding you years down the road, and no way to prove you’re free and clear.
Congratulations on finally kicking your student loan debt to the curb, Andrea! It feels awesome, doesn’t it?
Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.