Going Legit!

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yorkie

yorkie

Member
Joined
Mar 2, 2009
Messages
1,116
Location
Charlotte, North Carolina
The wife is making me go legit. I guess I'm selling too many pens and she's getting nervous so I'm taking a small business course etc.

So, if I'm going to make it a small business, any tips on how to make it profitable and things I can write-off??
 
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only tip I can tell you is to re-evaluate all of your pricing. Make sure you consider all of your costs including your time. Not just at the lathe, but your time marketing, getting inventory etc.

As for stuff you can write off, talk to your tax guy as it varies by state. Congratulations and good luck!
 
Right now mine is paying for itself, Financing tools,
supplies, etc. The Wife doesn't understand that.
She wants everything deposited into the joint acct.(She's not real good with money)
I babble about that to say this: If you don't have one already
get a separate bank acct for your wood turning. It easier to keep track of sales and purchases.
 
I have been nervous about selling my pens without a tax license. Three times in my life I have let my hobby become a business, and soon it isn't fun anymore, so I'm not anxious to go the business/tax license route. Plus the paperwork is a pain in the rear. But people keep asking to buy my pens. I'm invited to a craft fair this week, and to avoid the whole tax problem, I am donating all proceeds to a local firefighter's charity.

How do you handle the tax liability when you are just a hobbist who wants to make enough to cover pen kits and CA?

Sharon
 
Sharon, here in VT you can't. They expect sales tax on every item purchased, I can't remember what state I was living in at the time, but the promoters of the art show wanted SSNs to turn over to the state for tax liability.
 
There are tons of things to consider; vendors license, state tax, federal tax ID, among other things. To avoid IRS issues you definitely need to keep seperate books between personal and business dollars. One place to check out for filing various forms and records is Legal Zoom.

In Ohio for instance if you don't have a brick and mortar establishment for retail space and sell strcitly online you have to charge sales tax based on the county of purchase. There are 88 different counties in Ohio all charging different taxes. All states are different, best thing to do is keep extremely accurate records.
 
Speak with a accountant that specializes in small business. Keep records/receipts of all purchases. Set up a bank account so you do not co-mingle personal and business funds. Probably speaking with an accountant is the most important, it can save a lot of future problems with tax people.
 
If an accountant tells you to "expense" portions of your home and home overhead, ask what that will do to the complexity of the selling of your home (if you don't plan to live there for the rest of your life).

MANY years ago, I sold a home and the accounting was very complicated, because I had expensed part of the house as rent for my office---the tax benefit was not worth the complications.

Could WELL have changed since then, just ask the question (it'll make you sound old and interested!!)
 
Schedule C

The Federal tax is easy - just a schedule C....no Tax numbers needed (other than your SSN) unless you have employes. No problems if you show a profit. If you show a loss, the tax law says you can't claim it if it is a hobby. Business is defined as activity carried out with the intent of showing a profit....you do not have to make a profit but, if audited (you probably won't be), you need to convince the IRS that you intend to. Here are some things they look for.

Separate business checking account --- or a separate way of tracking business expenses and income. Like Quickbooks or Quicken Home and business.

Separate business Credit Card --- I use PayPal and a PayPal Credit Card for mine...no personal purchases on that card.

Accurate accounting....Save all your business bills. An alternative to this is to make all your busniess purchases on the separate credit card and save any online copies of bills.

Have a business plan.

The States vary widely....Delaware has no State Sales Tax so collecting sales tax is not a problem. But, you do need a business license and we di have a gross receipts tax.

Most states and many localities have a sales tax and you'll need to establish a sales tax account...how tough they are on enforcement depends on the state. And what level of total income you have might affect whether or not you need a special bank account to hold sales taxes in.

I never collected NY sales tax on my small business receipts and never ran afoul of the revenuers even though I had to file state income tax and my federal schedule C was attached.

Some states require sales tax collection on casual sales, others do not.

Take a close look at the Sales Tax rules for your state...some of them are almost sensible, NC might be one of them.
 
Depends

sbwertz said:
....
How do you handle the tax liability when you are just a hobbist who wants to make enough to cover pen kits and CA?

Sharon
Click to expand...

You just need to understand the sales tax rules...in AZ they are fairly complex with a state tax rate and counties and cities adding on their own and they vary from place to place. If you aren't making a profit, you won't have much to worry about vis-a-vis income taxes. Licenses you'll need to check on...even if the state does not issue business licenses the counties and cities probably do and you could need a license for every city you do business in.
 
Definitely talk this idea over with a CPA or accountant. You may be in for a surprise as to the possible complications that exist. That damn tax dude wants to make a name for himself and all it takes is but one little mistake and they got ya by the short hairs.

All things are very different in each state so talk it over before you do anything?
 
SCORE

find out if there is a SCORE office near you or go to their website online...they provide free services and advice to people starting or in a small business...I found them to be very helpful., especially with the business plan.

The first rule of success.....Know what business you are really in. They will help.
 
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