I received an art grant and I used it to purchase a lot art supplies and equipment. I did sell some of my work but only made about $2500 all year, and my grant was $5000. I invested the entire thing plus some so I really didn’t profit and don’t want to pay taxes on all this money. Does it make sense to start a side business before the year ends so I can write off all my expenses? I want to just start a sole proprietorship. And hopefully next year I will actually make a profit.
I’m not sure I understand the “side business”. You already have a business. You’ll likely get a 1099 for the grant. Any other income can be reported as sole proprietor income alongside that. You can deduct any appropriate expenses used for business.
You may want to clearly establish that the equipment was purchased for business and not a hobby. https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax-purposes