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.
Not an accountant, but you should talk to one.
For capital assets that are used from year to year, e.g. durable goods, computers, furniture, etc., you would depreciate the cost of that equipment over time. You also need to keep track of this equipment, because as a business you will be required to pay personal property tax to your state for what assets your business owns, over a certain minimum amount. In my state, I pay $300/year personal property tax minimum as an example.
You can’t write off more than you made in a single year. If that $2500 was “profit” and you spent $5000 in equipment, the most you can write off this year is $2500. In that case, you’d be better off depreciating the expense and taking some write-off this year, and more in coming years when your net income is higher.