Purchasing from lesser known makers

Hi Joss,

Reduced tax liability will increase the amount of money you have to spend on knives.

Remember it is not what you make...it is what you keep.

WWG
 
Hmm... Granted, but is it material enough to matter to a collector, who trades maybe a fewe thousands $ worth a year and makes a small profit at best on this? My "income" from knife selling & buying is completely immaterial (if i9t exist at all - I'll take the 5th on answering that).
 
Hi Joss,

If the makers are any gauge, the answer is that few if any are interested in the investment or business aspect of custom knives. This is of course the main reason that custom knives will always remain a hobby and never truly realize what it could become.

I was just offering a way for collectors to have even more money to spend on knives. It is up to them.

If it was easy everyone would do it.

WWG
 
Hi Joss,

Just reread you post. You missed the point. It is about reduction of tax liability. Even the IRS doesn't say you have to show a profit.

If you did show a profit would you like to have a way to reduce if not eliminate all taxes due on that profit?

Which would you prefer to spend...pre-tax or after-tax dollars? Simple as that.

Again I realize most people don't understand what I am talking about here. However, your CPA will.

The thing that amazes me is not that people start some type of business and become some type of business entity. It is that they don't. The IRS thanks you.

WWG
 
WWG
"The thing that amazes me is not that people start some type of business and become some type of business entity. It is that they don't. The IRS thanks you."

I found that out also, it does make a difference.
 
What about collectors who don't report their trades? I believe this is the majority. Again, this is so immaterial for most of us...

PS: I didn't miss the point. ;)
 
I started buying custom knives as a " step up" from production knives, with asthetics and name as basically unimportant.
The idea of these being an investment was, at the time, beyond me; I wanted a tool, plain and simple.
The makers may never be on the top of the Knifemakers Hall Of Fame, but what they have done for me in terms of product, has more than sufficed.
Some of them are;
Brad Roe
Daniel Certo
Warren Tandoc
Ray Rogers
Ted Frizzell
Scott Gossman
O.k.,I'm pretty sure people have heard of Ted & Scott!:)
 
Hi Joss,

You did miss the point. You keep focusing on your the "trades" you make. It has nothing to do with that.

Gross Sales: $5,200

Starting Inventory: 7 knives $2,000.00

Purchases: $6,200.00

Ending Inventory: 9 knives $2,800.00


IRS Form 1120, line 1a. Gross receipts or Sales = $5,200

(Page 2 Costs of Goods Sold)

1) Inventory at beginning of year = $2,000.00

2) Purchases = $6,200

3) Cost of Labor = $0

6) Total = $8,200

7) Inventory at the end of the year $2,800

8) Cost of goods sold = $5,400

Back to Page 1:

1) Gross Receipts = $ 5,200

2) Cost of Goods Sold = $5,400

3) Gross Profit = (-200)

11) Total Income = (-200)
So at the end of the year, you have increased your inventory (collection) by $800 and you showed a $200 loss.

This is obviously a very simplified 1120.

Now subtract your deductions show expenses, shipping, phone, etc. You subtract that from your total income. If you had $400 worth of deductions you would have a (-600) on Line 30 (your taxable income). If you paid taxes during the year, you would be entitled to a tax refund.

If you did not you can carry this $600 loss forward to the time when you have $600 on line 27 (Deductions). This would reduce line 27 by $600.

Two things to note:

There is no set "number" for a profit to be considered a profit. $10 profit is a profit.

A very small business like a collector would have requires very little paperwork and the tax return can be very simple to do. should you choose to have a CPA complete your return (which highly recommend). That fee is deductible the following year.

The government understands that the 5% of the population that are entrepreneurs create 100% of the taxable jobs in the US. Subsequently, the tax code (in most cases) favors the business man.

Anybody out there paying the AMT on their 1040 knows the tax code does not necessiarly give the same favorable treatment to the individual tax payer.

Hope this made sense.

Two years ago I took the H&R Block basic tax course. On top of that I took another 200 hours of course work. Arguably the best $250 I ever spent. I highly recommend the course to anyone out there who is confused about the tax code. You would be amazed how interesting this gets when it is saving YOU money!

WWG
Hoping to start on a Masters Degree in Taxation in 2009!
 
Hi Bowieman,

You are going through what almost every collector goes through...me included.

The first 23 custom knives I bought went to the field with me, usually more than one.

It was some time before the word "investment" entered my custom knife vocabulary.

But once it did...my buying criteria was adjusted.

When I became a dealer my buying criteria was again adjusted.

When I went full time my buying criteria became more focused. The maker actually became more important. Not for their skill or position in the market, but their character.

WWG
 
Very interesting point, WoodWorkGhost.
I suppose in the near future I will adjust my custom knife criteria accordingly.
Considering the amount I've allready spent (not much,judging by some of y'all's standards), this is something that, perhaps, I should've contemplated sooner.
 
wwg-can you explain what you mean about the maker's character....i'm not sure if i understand.....don't you sort of try and predict knife trends and decide in your mind who is becoming a "hot" maker or what will turn a good profit for you and buy accordingly.....could you explain a little more about how character plays into it....thanks in advance....ryan
 
ryan9977 said:
wwg-can you explain what you mean about the maker's character....i'm not sure if i understand.....don't you sort of try and predict knife trends and decide in your mind who is becoming a "hot" maker or what will turn a good profit for you and buy accordingly.....could you explain a little more about how character plays into it....thanks in advance....ryan
Click to expand...

I am looking forward to WWG's response, but trust me, character does matter.

P
 
Hi Ryan,

Character is essential for a maker to be successful long term. Character includes things like Personality "Flaws". All of us have these, what I am speaking of is "Flaws" such as:

Lack of Ability to tell the truth.

Lack of integrity.

Lacks control of their vices (drinking, drugs, gambling, etc.). If a maker goes full time and has problems with any of these it will surface.

Builds more excuses than knives in his shop.

Inability to grasp the concept that it is not all about "Them". Flamers on the internet forums has reduced this mentality some what.

When talking with a maker I haven't worked with before after I talk with him for 10 minutes I ask myself "Could I go fishing with this guy". If I answer myself "yes" then I keep talking with them. There are questions I ask early in the conversation that tell me what I need to know.

Each person needs to develop their own questions. In my book I wrote about 7 questions you should ask a maker you are thinking about buying a knife from. These are what I used early on, but they worked. Now my questions are geared towards a variety of indicators.

Character and Trends are two completely different things.

Character speaks to the maker.

Trends are created by collectors. Generally one maker does something and has a great show. Tells every maker he knows he sold out, what he made and then tells them how he made them. Collectors want the innovator or originator. If they can't get that knife from that maker, they start looking for others like it. Which are now available because the first maker told anyone who would listen about the great show they had. Makers, remember your knife maker friends are your competitors.

I call this the Commoditization of Custom Knives.

This is especially prevalent in the folder market. The mind set seems to be "get them all". Then decide on favorite makers/styles/materials then start to eliminate those that don't fit and replace it with one that does.

On the fixed blade side of the house, this usually shows up in hunters.

Hope this helps.

WWG
 
wwg-thanks for the response...you answered my question in full.....even if a maker has the best knives on the planet i won't buy from them if i don't care for their attitude or if they have other flaws that you mentioned.....i have in the past and will continue to do so in the future......i must say for the most part ....all of the makers i have met in person or even talked to on the phone will go out of their way to help you answer any questions and teach you about how they construct their knives.....thanks agin

ryan
learning everyday from wwg
 
WWG,
Just out of curiosity, are you advocating for knifemakers to not be so open? Or simply saying that they would do better financially if they kept some secrets?
Nick
 
WWG,

As an individual, can I claim my tax credit as an incorporated collector on my federal income tax from my job? That would be a small benefit (although being able to claim show and purchase costs as deductables might make it worthwhile) but otherwise I still don't see the rationale.

Most collectors will realize minimal to no profits on their selling & buying (trades). So by not declaring, they take very minimal risk with the IRS, and pay 0 taxes. In your example, the collector takes no risk whatsoever, pays no taxes, but has to go through the expenses and inconvenience of hiring a CPA, keeping somewhat detailed accounting & keeping supporting receipts, etc.
 
Joss,

I guess I am not explaining myself well enough. There is no such thing as an "Incorporated Collector."

There are several business entities that an individual can enter into and start a business.

I chose a C Corp. However, a LLC is probably the best fit. For tax purposes this is superior to the Sole Proprietorship option.

You misunderstood my example.

You do not have to make a profit. You have to show an "intent" to make a profit. This could be defined by such things as business cards, a web site, or trips to Trade Shows (knife shows).

The Small Business Association (SBA) will tell you when you are presenting your business plan to them for a loan. That you should expect to not expect to draw a salary. That any and all profits will more than likely be put back into the business. Also that 75% of all new small business's will fail within the first 5 years.

The IRS is familiar with the SBA statistics.

Joss,

You are correct. What I describe takes a little effort and time. It is not near as easy as doing "Nothing".

My advice to you is do not do this.

WWG
 
In a separate occasion I asked my CPA if I should report to the IRS small sales that generated small profits of a few hundreds to a couple thousands a year, he told me not to bother (those were not knives). I guess it's a question of risk tolerance.

As a side note, I'm not sure if your reponse answers my question: can I use any tax deductable expenses from my knife collecting activity against my regular taxable income? If yes, that can be interesting.
 
Hi Nick,

It is a fact that like minded people enjoy discussing the things that they have a similar interest in.

There is no one a knife maker likes to talk to better than another knife maker.

Why? Because what they are doing is appreciated by no one more than another maker. This is why they are happy to share what they are doing and how they did it with any knife maker that will listen.

Custom Knives is a Collectible Hobby market, not to be confused with a business or investment based market.

In a business environment proprietary information would remain such. Copyrights, Patents and Registered Trademarks are common place in a business environment. This is done to establish and maintain a "brand" and to maintain or gain a competitive advantage. I am aware of the costs associated with maintaining control over the aforementioned proprietary information. Fair enough.

In a investment environment, things such as risk tolerance, risk assessment and Return On Investment are talked about with the same regularity as heat treat numbers, Rockwell hardness and metallurgy in the custom knife market

If makers didn't share everything, there would be fewer makers. Those that are innovative would have long ago moved into the investment arena similar to sought after gun makers. Even the gunsmiths of today...who in most cases do not build the hand gun (.45 for example). They are called custom gunsmiths, fact is they are customizing a standard model. However, the majority of these gunsmiths guns are bought as investments.

Why? Because they are world class craftsman with a long wait for their work. Sound Familiar?

I can't tell you how many times makers have come to me and said "They stole my idea, or treatment, or design, etc.

But don't you know that "imitation" is the sincerest form of flattery!

WWG
 
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