A company?

O

Omega Leather Works

Joined
Jun 13, 2007
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So most of you know that I'm only a hobbyist at sheath making. I don't sell anything. But humor me...

Assuming (this would be accurate) that I know nothing at all about forming a company. What all is involved? When should one take this step? Is that the only way to order from places like Weaver? Really, anything you can tell me about this would be appreciated.
 
If you don't know anything about running a business, any business, then you need to address that first. Classes in business, accounting, web design, photography. Dealing with local, state, federal taxes, liability insurance, workers comp, zoning, leasing a building, inventory, supply chains, employees and management, working 7 days a week.... the list goes on and on for about ever.

Leather is actually the easy part. Don't forget the money, It takes a lot. Don't invest more than you can afford to lose.

Forming a company? You have shareholders or business partners? Find an attorney to setup and file the paperwork with the state and pay the fee. If you just want to order from Weaver then go online and order, they sell to individuals and they will charge you a premium for doing so.

When is the right time? When you know you have the required crafting skills, knowledge, investment money, work ethic and a business plan.
 
I think what I meant is starting a business, not a company. Clearly there is a big difference! I like the idea of taking business classes though. Good advice.
 
Sky said something very important, state and federal taxes. I see way too many knife and sheath makers who think they dont have to pay taxes. Best rule: "DONT MESS WITH THE IRS!!!!" When someone brags to me or on the forum about not paying their taxes or registering their business I cant help but walk away shaking my head, they are poking a tiger. The IRS will chew you up and spit you out if they even have an inkling that you cheated on your taxes. Income is income no matter where it comes from, and you owe taxes on it. There is no such thing as a tax free business income.

The knife maker a little while back who fussed that paypal was starting to report transactions with the IRS. Yes, he was in a mountain of hurt, and a few thousand in back taxes.
 
Yeah definitely want to be on the up and up.

So let me ask you this. Say you make one sheath (or knife, or whatever) and sell it. Okay, you're probably fine right? Say you sell 5... 8... 10... At what point do you start reporting?

When I was younger I sold quite a bit of writing. Never even occurred to me to report it. I don't want to make any mistakes that can easily be prevented.
 
When I was a young fella starting my first business , a old neighbour of ours gave me some advice ..
I remind myself of it every time I'm contemplating investing , acquiring , expanding .

" Fall in love with the numbers , not the idea "

In any business the numbers have to work before you commit your hard earned cash to the project .
Don't get seduced by dreamy romantic notions . Go into the exercise with educated knowledge .
Good luck with your endeavours :thumbup:



Ken
 
Strigamort said:
Yeah definitely want to be on the up and up.
So let me ask you this. Say you make one sheath (or knife, or whatever) and sell it. Okay, you're probably fine right? Say you sell 5... 8... 10... At what point do you start reporting?
Click to expand...

I researched this for quite a while before getting a tax number. Too bad I don't remember enough of the details to give a more informed answer, but at the time I was only making and selling a couple of knives per year. After my research, I decided to get the tax number in order to collect sales taxes. If I recall, you can sell as a hobbiest for a while, but the safest thing to do is simply set up a business or DBA. There is not a clear line between a hobbiest and a person selling for profit; which would you rather argue to the IRS?

Mike
 
I would start reporting the income at sheath/knife #1. If you get audited later for something unrelated a money trail is easy to follow for them. To think about it a different way, sure people get away with stuff all the time but it only takes once for you and then all the money you think you 'saved' by stiffing the tax man and society in general will be gone along with a whole lot more in penalties, fines, asset freezes and a free stay at the grey bar hotel if they feel like your purposely defrauding them.
 
Is a business license required to report the extra income? I'm assuming not. Are there requirements for obtaining a tax ID, or can anyone just go get one?

Sorry for what must sound like juvenile questions. Ignorance is no excuse for breaking the law and all that so I figured you guys would know the best way to go about this.
 
Hey Strig, no the business license is not required for the IRS or here in Ca for BOE. The business license is issued by your city or county and is for them, not tax purposes. You can just apply online for the tax id number there aren't any special requirements, its basically a ss number for your business. You can run a small business off of your SS # where the income is reflected as personal income but now you're getting into tricky stuff where you probably ought to talk to a CPA. You will also need to do a DBA at the County Recorders office and then publish it in the paper. Then that paperwork needs to go to the bank. That stuff is pretty easy though. Good CPAs are very spendy and worth absolutely every penny. Might be a good idea to start there. Your County Recorders office will probably have a list of things to do for ya too. Good info.
 
Like Horsewright has said.

In the simplest form, create a DBA through the county/city/local authority.

Then use that DBA to register with the state to obtain a tax number. This number will be used to collect/submit sales tax. I'd recommend classifying the business as a "craft" rather than a "manufacturing" operation.

When it comes time to do taxes, just account for the extra income while filing under your social security number.
 
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I wonder if people don't do all of this because they think they might make one or two sheaths, knives, whatever, or if they don't know that it's something they'll enjoy and continue to do for the long haul.

That's kind of where I'm at. I'm fairly certain that I'll always want to make something (anything) by hand, but I've never considered selling anything.

I'm not sure what a DBA is, but I'll look it up.

So I assume that if you call your business a "craft" you are allowed to sell anything? Obviously handcrafted beer or something like that would have its own hoops to jump, but for woodwork, leather work, knifemaking, etc, those all fall into the same category, right?

Thanks for the help. I really don't know what people did before the Internet. Every single thing I've ever created, be it knives, sheaths or instruction manuals have benefited from people like you. :)
 
A DBA means "Doing Business As." It can be used to open a bank account so that you can move money and cash & write checks for your business. Sometimes it's necessary for city/county/state, sometimes not. I'm not a lawyer/accountant, and this isn't professional advice, but I will give my opinion on it. In general, from what I have seen/learned from my accountants over the years, the IRS is MUCH more concerned with just getting their money, than the structure you use to report it. They're the TAX man, and they want your money. I have used Sole Proprietorships, LLC's, the taxes are pretty much the same.

Getting a tax ID is a great idea, as it will often be all that is needed to setup a business account with suppliers, and you will get supplies often steeply discounted. Getting a tax ID #, or Employer Identification Number (EIN, if I recall, they're essentially the same thing) takes about 5 or 10 minutes on the IRS website, and is worth it. You will often need this to open a business account with your bank, depending on their regulations.

As far as paying taxes, I concur with everyone above, including you. Just pay them for everything you sell. It's just easier, cleaner, and the right thing to do. Plus, you never have to worry if you get audited. You did the right thing, end of story.

Sam
 
Also Strig. Ca just recently passed a "cottage industry" bill. That would be something to research.
 
Holy crap. I went on the irs website. My head is still spinning. Pretty certain I'm gonna have to get the wife involved. She's a math weirdo... I'm the artiste! :D

Seriously though, I think I put a gig of pdf's on my phone and I know less now than I did when I started. Definitely going to have to ask a pro.

Thanks guys.
 
It sounds overwhelming, but its rather simple to get the basics of a business started.

Good idea getting the wife involved, my wife holds a degree in MIS and teaches math, she is my business end. Without her not have, no would I still be, in business. There is simply too much to do, I spend all my time making.

The tax number is worth its weight in gold my friend, opens so many doors.
 
Haha yeah my wife's degree is in accounting. She literally does math for fun. It's fascinating to watch a person that thinks in a way entirely different than you.

Can't draw a straight line God love her. :)
 
If the BOSS teaches accounting, I would let her set up a system for the biz.

Also its not just the feds that want their money as has been mentioned. You have state and city, county, For instance, I pay a tax that goes directly to my local schools. Now i have a retail & MFG knife biz and the tax I pay is based on the cost of the equipment I have in my shop. A young my from the county stopped by just after I opened with a clip board and badge.

If you have a small shop in your home for sheath making you will not be paying as many taxes but you need to know what you are liable for in your area. The state of California wants its sales tax on all transactions.
You will surrender these taxes to the state quarterly. Its not yours to keep.
 
I don't *want* to keep it. Really, I don't. I wrote the thread for that reason.

I really do need to learn all of this stuff. My wife has always handled the taxes (for obvious reasons) and I don't believe we've ever actually not gotten a return. I would like to keep it that way if possible.
 
True, Texas has some laws that are applicable only for home business. HAZMAT is a real concern for those folks, I had to convince them that I never washed anything, and I do mean anything down the drain. I imagine Cali is a little more twitchy on that. There are some instances where it seems that they dont want you doing business out of your home, or business in general. Taxes eat up so much of my income that when I hear someone brag about their avoidance of such, well, I get more than angry. I pay state and national and the wife slogs through both taxes for days then only to get shafted. Yea, I do not like tax cheats. I honestly think that if everyone paid what they are required, it would be easier on the rest of us.

Yea, dont brag to me about your ducking taxes, I wont turn you in but I will wish all the Karma you deserve.
 
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