Questions for those who sell your work...

[riogirl71]

I have a black cat cougar and now am getting an epson large format (1430) and I would like to try and sell some things, maybe cut out photos printed on vinyl, labels etc.

My big questions are (I live in California):

Do you have a business license?
Do you claim to have a business in your taxes?
Do you ask for state taxes when selling?
Any other issues I should know?

The reason I am asking this is that I thought of doing consulting a long time ago and got a business license ($100) but then the county wanted me to pay taxes on any equipment I used (computer - priced as if it was new) every year so by the time it was all said and done it was not worth it for me to pursue it. I work 30 to 40 hours a week and have two kids so I don't have a ton of time or want to sell my crafts as a full time job or on a large scale. It would be maybe advertised on craigslist, or at daycare and I really don't expect to make money out of this but more to support my hobby and maybe pay for the materials/eletronics that I use.

Sorry if this has been asked before, I searched and could only find advice on pricing but not these other issues. Any help is appreciated!

[Deb Za]

Every state and county differs in how they view this. There is a fine line between engaging in a hobby, or running a business. Only a tax professional can give you the accurate information you need for where you live and what you might be selling.

[riogirl71]

I agree! And before I go ahead and do anything I would consult someone but I was just looking into getting personal experiences here from people that have gotten into a home business of crafts and those who just occasionally sell. I read the description of IRS on Hobby vs business. I want to clarify that I am not looking for someone to give me legal/financial/tax advice here but more just a personal experience. If you don't want to post, please pm me with your experience on this, that would be most helpful! I am just trying to get insight to see if this is worth pursuing or not.

[Elizabeth]

Hi Heather,

I occasionally sell hand made items. Because I generate so little income (less than $100.00 net!) I don't claim it. I'm sure if I did, it would end up being a loss by the time I factored in materials and equipment. There are no income or sales taxes in NH, which makes it easier.

[riogirl71]

Thanks Elizabeth! No state or sales tax. Very nice!!! Taking in consideration materials and equipment it would not be a profit either.

[Suzan]

Even for the very little guy it can be very convoluted. Technically you should charge what your state requires. That officially being said. What is it you are going to sell. Finished items, patterns what. Here in California, even to go to craft shows they can require you to have a re-sale number, which here is free, but you have to file returns quarterly. And technically you only have to pay tax on the mark up of your product. So if you make something and pay 1.00 in tax, and mark it up 50 % you would deduct the 1.00 you already paid and pay the difference of the markup. But if you sell online files, there is no sales tax. because it is data being sold not actual things. I don't think to many people worry about it unless they are more big time. This is a hobby basically that you want to recoup some of your expenses off of.
And it doesn't matter if you profit or not on a job, sales tax is a whole different story. here a work when we file sales tax we have to list our parts and any sales tax paid on them, and our labor which has to balance to our sales for the quarter. The labor is deducted from that total, and we pay tax on the amount of parts we sold. So we don't do high markup on our parts we charge more for labor. And since you will be paying sales tax on items you buy it wouldn't be that much.

[kim]

http://www.ipowerweb.com/iboost/manage/ ... /40004.htm

This will help a little and is in more simplified layman's terms without getting into all the jargon the IRS likes to use. Of course, if you were to make a lot of money and would still do this as a "hobby" regardless of profit or loss, the IRS will start wanting it's share of money. The same goes for states.

I would venture a guess that starting off, you are just a hobby. If and when it turns into something more, then you will want to get a business license (depending on area you live in) and register to collect sales tax. You will also start filing a Schedule C (to your Form 1040) with the IRS unless you incorporate or do business an some kind of entity other than a sole proprietorship. Which, if you incorporate, the state of CA has a minimum tax of $800.

[riogirl71]

Wow, thank you! I know a lot of people end up trying to claim hobbies as business in the IRS eyes so they can claim a loss and buy some fun toys in the process so I can understand why they are on top of it. I think it was Colorado that I saw has a clause that if you sell less than $1000 per year from a home business than you are exempt, I guess I was wishing California had something like this. I don't want to be doing anything improper but at the same time I don't want to end up in the red by selling a craft just to recoup materials, being buried in paperwork. If that makes sense. It really seems like they make you jump through quite some hoops and discourage some small businesses/hobbiests from pursuing selling things! Interesting point on selling data vs something like a vinyl photo... Now I understand why so many digishops!
So if I understand this correctly - in the eyes of IRS you can be a hobbiest but in the eyes of the state they want their sales tax!!!! Thanks again!

[kim]

My take is that I would follow the IRS rules for the most part. The states want to collect sales tax, but if you are only collecting a littel, having to file out the form, they have to have someone deposit the check, check the calculations, etc etc etc. As long as you are small, I wouldn't worry. Only when you start making money (not a couple of hundred) would I even worry about it. And When you make money consistently.

[Suzan]

If you are in California, Call the State Board of Equalization and tell them exactly what it is you want to do, and what you need to do, You don't have to give your name or that. They can be extremely helpful. I did that when enquiring about selling files. They were super helpful.

[btrengove]

2 more notes for California Resale Laws
- If the item is sold and shipped directly out of state to be used out of state there is no sales tax collected or paid on that item
- If you ship the item with a common carrier (your don't deliver it yourself) and you do NOT mark up that shipping, then there is no tax on that shipping no matter where the item is sold (in or out of state). If you mark up the shipping charges then you are liable for the tax on the profit portion of the shipping.

- I just double checked these because I need to file before the 31st (wish me luck)

[Elizabeth]

Good Luck!

[Deb Za]

Another thing to consider is that you possibly won't make much the first few years. That's when having everything legal with the IRS is a bonus--you get depreciation on your equipment, which can help on your bottom line. My first few years were very lean.