Making a hobby a business?

hagatha

hagatha

Joined
Jul 17, 2014
Messages
77
Greetings,

Since high school machine shop, I have dabbled in knife making, mostly as a hobby and always as gifts for friends... while in the military, I made a few for soldiers I respected and continue to give them as gifts.

This past summer I met the Governor of Jalisco Mexico. I was invited to a special gathering of local business men, most were owners of Tequila producing facilities, they represented the finest Tequila in the world. He showed me his modest collection of knives and on my recent visit when we met, I presented him with one of my knives... it was in the local paper the next day....

Anyway my friends persuaded me to start a little business, so I did.... got the LLC, but when I visited an accountant, I was informed of all the state sales tax stuff you have to do, if you sell a "retail" product from a web site, you have to pay sales tax to the state who received it.

So here lies my question... What do you do when it comes to all the "business" stuff? sales tax, receipts... etc... ?????

Having never owned a business.... what do the other businesses here do?

thanks in advance
hagatha
 
 
Well, you can follow all the rules and laws that govern all businesses large and small or you can disregard them ... Just remember the old saying, "Don't do the crime if you can't do the Time."

Maybe your first step should be to hire a good accountant?
 
Check your local Zoning Laws first and be certain you can "Manufacture" where your shop is!
Nosey neighbors and zoning enforcement will get you fast...
 
Definitely check on this one. I just had to outsource all of my welding because I can no longer weld in my building for insurance reasons. Strange that they will let me grind all I want, just not weld. Luckily, the city zoning board doesn't mind back room manufacturing, as long as it's not the main business.

PS Donnie is a much better welder than I am, so this is actually just the kick in the pants I needed to get a welder contracted.

Hankins said:
Check your local Zoning Laws first and be certain you can "Manufacture" where your shop is!
Nosey neighbors and zoning enforcement will get you fast...
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Collecting and submitting sales tax to the state is not all that difficult. At most, Texas will probably ask you to submit the tax quarterly. I submit yearly since I don't have a lot of sales revenue.

It sounds as if the sales taxes are your biggest concern. If so, this is a small hurdle to overcome.

The benefit of running it as a business is that you can write off expenses and depreciate equipment purchases. This can substantially reduce your yearly federal income taxes. Just be sure to track and document your expenses, and only file actual expenses (don't try to get creative with the deductions). The help of an accountant is generally recommended. I don't use one, but have spent MANY hours reading instructions, internet articles, and tax advise about the 1040 schedule C and general book keeping practices.

If you intend to grow the hobby to a business and intend to stay with it for at least a couple of years then you should certainly submit state sales tax and enter deductions for federal taxes.

If you continue forward as a hobby, I still recommend that you at least submit state sales tax and claim the extra income on your 1040. Better safe than sorry.

Good luck,
 
I used to have a corporation in Texas, now I am a sole proprietor. In Texas, the sales taxes are easy. You visit your local comptrollers office and they will get you taken care of. You will likely have to file quarterly for the first year or two and then they will give you the option to file annually. The form has maybe six lines on it and they will send it to you every quarter to fill out. You do have to track your sales and you don't have to pay sales tax on out of state sales. If you're making less than $2million annually, it is unlikely that you will have to pay any kind of corporate income tax. You will need to get a federal tax I.D number; it is easiest to have an accountant deal with this for you but, the paperwork is not that difficult. I don't know what is involved in federal filings for an LLC but the corporate stuff was complicated enough that I had an accountant do it. Honestly, I think an LLC is overkill for a one man knife shop but, I am neither an accountant or an attorney.

Bob
 
hagatha said:
.... got the LLC, but when I visited an accountant, I was informed of all the state sales tax stuff you have to do, if you sell a "retail" product from a web site, you have to pay sales tax to the state who received it.
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Not sure about this, because I am neither a lawyer nor accountant, but you only have to pay sales tax in any states in which you have a physical location or "nexus". No small business could manage to have accountants in every state nor could many accounts handle all the different requirements for every state.
 
Atlas Knife Company said:
Not sure about this, because I am neither a lawyer nor accountant, but you only have to pay sales tax in any states in which you have a physical location or "nexus". No small business could manage to have accountants in every state nor could many accounts handle all the different requirements for every state.
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Several states require payment of sales tax regardless where the seller is located or if they have a business presence in the state. Washington state signed an agreement with 21 other states regarding sales tax collection on out of state sales.

Here in Washington state sales tax varies by address. Within our zip code we have different sales tax rates. Two streets south of us pay a higher rate that we do. A knifemaker must have software to determine sales tax by address if they are going to collect sales tax for Washington state. I'm sure this problem exists in other states. Amazon currently has software available to do this task. Coincidentally, Amazon is lobbying to have taxes collected for all retail sales occurring across state lines.

Chuck
 
Some information I did not know. Chuck, are you collecting and reporting sales tax to all the other states, or just within Washington? All the information I have read on the website leads me to believe that I am not required to collect sales tax for items sold to another state. It is a program to make it easier on those businesses that have a nexus in multiple states.

Typically retailers who sell into a state through mail order do not attempt to -- or need to -- collect sales tax. Some states, such as Iowa, require you to report out-of-state sales on your Iowa sales tax report, but then exempt it. Carefully check your own state’s sales tax report to see if you are required to report sales in a state where you have no physical presence.

In an attempt to collect sales tax on interstate sales, some states have tried to enter into agreements that require merchants to collect and submit the sales tax for each state. For instance, New York and New Jersey started the New York/New Jersey Cooperative Interstate Tax Program, but it was rescinded in 2010. The Streamlined Sales and Use Tax Central Registration System was created as a way to collect sales tax on mail-order sales. In 2013, it has 22 member states: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming. However, registration in the Streamline program is totally voluntary.
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We are a wholesaler. We do not collect sales tax. The materials we sell are used to make a product. In theory, the person making the end product is responsible to collect sales tax when items are sold.

Chuck
 
Disclaimer: I am not a CPA, accountant, lawyer, etc. so don't take this as binding advise:

Some states have been aggressively pursuing large retailers in order to collect sales tax for items which are destined for their state, yet are purchased from elsewhere. Before online shopping became popular, everyone mostly bought items locally. For many years, states have experienced a decline in sales taxes due to online shopping through out of state retailers. It also puts local businesses at a disadvantage.

There is large debate about how a small business can be required to collect and submit sales taxes to other states. It would result in a small business accounting nightmare: submitting payments to a huge number of taxing localities, all with different tax rates. I'm sure these laws will be legally challenged and things will work themselves out over the coming years.

For the time being (as a hobbyist/fledgling small business owner), I wouldn't worry about anything besides your requirement/duty to pay sales tax to the state in which you reside.

Mike L.
 
Alpha Knife Supply said:
We are a wholesaler. We do not collect sales tax. The materials we sell are used to make a product. In theory, the person making the end product is responsible to collect sales tax when items are sold.

Chuck
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Chuck, I have never bought from your company... yet. You have a wonderful selection of products and a very good reputation. What information do I have to furnish to qualify for a wholesale acct. EIN? State re-sale number?
 
My advice is to work with one of the many business coaching services that are available in probably every major city in the world. I am doing this right now, for two businesses I am setting up. The network of contacts as well as getting good information on the best business structure (LTD or sole proprietor etc.) and the tax structures each requires. If you don't have a business background, this training can be worth a fortune in avoided mistakes. I have learned a ton about business in the past two months, and am much more confident regarding the potential for success.
 
Smithy said:
Chuck, I have never bought from your company... yet. You have a wonderful selection of products and a very good reputation. What information do I have to furnish to qualify for a wholesale acct. EIN? State re-sale number?
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Thank you for your comments.

You can place an order anytime. Only Washington state residents must have a resale permit.

Chuck
 
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