Taking the first step.


Juicegoose

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So I have well paying day job and have been doing woodworking projects on the side. Nothing big like furniture just items like bahama shutters and such. Lately though I've been getting more and more people ask me to build items for them. I'm in no way at a point to quit my job and doubt I would ever be there but as side income its nice.

 

My question is with the increase in commisions should I start a business for tax and income purposes? I think I could get more business if I invested in a website but for now it's general word of mouth.

 

Do I have to start a business to account for the income? Also what about writing off materials and such. I'm assuming that a business is a must before I can do that.

 

What type of business do I need to start?

 

I guess my general concern is that although I enjoy the time in the shop I would love to be able to fully capitalize on the time and effort. Being able to write off items on taxes and account properly for income from sales would be nice.

 

Thanks.

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Hi Juicegoose

 

I can't cover all bases because I'm UK not US, however this is my two cents.

 

Website is important but not essential. A great deal of our work is repeat biz and word of mouth with the web as a side. Although it's always moving towards the web. If you want to dip your toe in on the web try creating a pinterest page. It's free and a something you can refer clients to so they can view examples of your work. This is how I've done mine http://pinterest.com/joinery/ . I have a mix of my work and work I like. You can also set up a blog for free http://wordpress.com/

another way for you to show clients your are human and have a passion for what you do. Some just use this as their website.

 

Speak to an accountant or similar regarding your biz and tax issues. And if you can make a biz plan, they may well help with this. Keeping it all legit is essential, you want to start on the right foot.

 

You could offer your services in a generic way. A popular job title in the UK is Carpenter & Joiner, it seems to cover nearly all bases.

 

A way many people make the transition is wait until they are too burdened by jobs and enquiries that the day job just gets in the way.

 

Enjoy the journey dude.

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Thanks for the reply. I guess my main concern is not getting in trouble with the law if I make a profit off the items I sell be it a neighbor or a family member.

 

Your not going to get into trouble for selling a few items a year. Your state may take issue with the sales tax but they are not going to hunt you down for a couple dollars. On the other hand your not going to grow if that is what you want unless you go legit. Even the idea of paying retail for supplies and wood is not good business. It just depends on how far you want to go with your venture.

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If you can crank out a couple projects a year and make ~ $1,000 extra, it sounds like an amazing deal. I hear about people not wanting to take their passion (woodworking) and turn it into their job. By keeping your work small and biased to projects you pick and choose, you can have much more fun.

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Thanks guys. Thats more or less my point. I'm not trying to make a living off what I do but if there is  a way that i can see more profit in my pocket by either getting business discounts or tax right offs I'll take it. We all know that people just generally don't appreciate or understand the cost associated with a wood project. Dang Ikea!!!

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Thanks guys. Thats more or less my point. I'm not trying to make a living off what I do but if there is  a way that i can see more profit in my pocket by either getting business discounts or tax right offs I'll take it. We all know that people just generally don't appreciate or understand the cost associated with a wood project. Dang Ikea!!!

 

Go talk with some of your local suppliers and see if they are willing to give you anything with such a low volume. Some dont want to bother with low volume guys. A lot of finishing suppliers have minimums but if you meet the minimums you can save 50+ % over retail. Lumber suppliers will usually give you a little even with low volume. Then there is hardware suppliers that will give you a much better deal over places like rockler and woodcraft but some require your corp to be classed as a manufacturer. You may find you wont see any real benefit and its not worth the hassle. 

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Fly under the radar for as long as you can , don't worry about writing off anything .  Some suppliers don't care whether your a pro or hobby guy , just play the part , reach out to other small shops in your area and small suppliers .  Where abouts are you ? You might be able to hook up with some guys here for buying power .

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Speaking from experience this is a tougher question than you think.

Here's the advise I got and followed and would recommend to anyone. Go see an accountant who specializes in small businesses. When I did this a 1/2 hour consultation cost me $75.00 and it was well worth it. The laymen were telling me "Oh you can get great tax breaks by starting a business!" Much of that doesn't materialize.

Before you go to see him or her, get your numbers together. What do you think you'll gross? what are your expenses? Do you use your home office? Do you have a vehicle expense, etc... Most importatly think about business insurance. Do you have a risk that something you've sold somebody will lead to a lawsuit? Not to be a downer, but that can be a real risk. It is rare, but you could lose your house, your savings, everything if you don't think ahead about something like that. It's not a big risk if you are selling jewelry boxes, but if you are making baby furniture?

 

There's great advise on this forum. Lots of us have been in similar situations. Personally, I did start a business. But I intentially stay very small time. I pick and choose my projects. I only work on things I find interesting for some reason. I never have that "I have to make the donuts" feeling.

 

I hope this helps. Good luck to you.

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Speaking from experience this is a tougher question than you think.

Here's the advise I got and followed and would recommend to anyone. Go see an accountant who specializes in small businesses. When I did this a 1/2 hour consultation cost me $75.00 and it was well worth it. The laymen were telling me "Oh you can get great tax breaks by starting a business!" Much of that doesn't materialize.

Before you go to see him or her, get your numbers together. What do you think you'll gross? what are your expenses? Do you use your home office? Do you have a vehicle expense, etc... Most importatly think about business insurance. Do you have a risk that something you've sold somebody will lead to a lawsuit? Not to be a downer, but that can be a real risk. It is rare, but you could lose your house, your savings, everything if you don't think ahead about something like that. It's not a big risk if you are selling jewelry boxes, but if you are making baby furniture?

 

There's great advise on this forum. Lots of us have been in similar situations. Personally, I did start a business. But I intentially stay very small time. I pick and choose my projects. I only work on things I find interesting for some reason. I never have that "I have to make the donuts" feeling.

 

I hope this helps. Good luck to you.

 

Time for a new accountant. Done properly the tax breaks can be huge. The liability issues are also fairly mute. These things are very elementary business procedures.

Is any of it worth it for a few items a year? Chances are pretty good they are not. The problem is finding the line. Flying under the radar and getting caught could easily be thought of as a crime, so you need to find the line. If your going to put up a web page and hold yourself out as a business then you probably should just become one. If your just selling tidbits to neighbors and friends then your really not doing anything wrong and dont need to worry. 

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PB,

Maybe I should have been more clear.
Before I visited an accountant, I was told you would get your money back for anything you purchase from magazines, to gasoline, to wood screws. My expectations were completely out of line. After visiting an accountant I felt much more prepared to make an intelligent decision.

I really didn't understand the term "Write it off".

Appearenly neither did some of the laymen that were advising me. The people I talked to made it sound as if as long as you don't make a profit from your business, you'll get all of your loses back in tax breaks... that is simply not true, but it may be a fairly comon misconception.

 

Yes, tax breaks are nice. But you don't get your money back. That's why I'd suggest getting all of your numbers together before going to see a professional.

 

I am in complete agreement with you on the "Flying under the radar" thing.

I know a bunch of people who do similar stuff to what we do and ask their customers to pay them in cash so that they don't have to declair it. But it always seems these are the same people who are the first ones to cry foul about these "evil big business that are only about making money." I've challenged a few of them to say why are the big businesses evil, but you cheating on your taxes not evil? I almost always get the same response. "THAT'S DIFFERENT!" But very rarely anything other than that.

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PB,

The liability thing may be mute in what you do. But if you are not at least an LLC, you can get screwed by a customer. Everyone has a horror story I know. Here's mine. A former neighbor of mine was layed off during the economic downturn and started a "handyman" business. He was a sole prorietor. One of the jobs he did led to a plumbing problem that created a lawsuit which got ugly and darn near broke him.

 

Not to turn this into a political or ethics conversation, but there are people out there who view starting a lawsuit as akin to winning the lottery.

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PB,

The liability thing may be mute in what you do. But if you are not at least an LLC, you can get screwed by a customer. Everyone has a horror story I know. Here's mine. A former neighbor of mine was layed off during the economic downturn and started a "handyman" business. He was a sole prorietor. One of the jobs he did led to a plumbing problem that created a lawsuit which got ugly and darn near broke him.

 

Not to turn this into a political or ethics conversation, but there are people out there who view starting a lawsuit as akin to winning the lottery.

 

Thats very basic business. First you have to know what a business is and is not.  You are not a business you are a person. A LLC will not protect you, dont have that false sense of protection. The LLC veil is easily broken with no effort. A sole proprietor is not a business it is a person doing business as most LLC's. In this case and probably yours the limited liability company is closely held. Closely held companies dont see any benefit in liability limitation.

 

To your post above. These two go hand in hand. If your an LLC you are just a person operating as a business. Being a member or employee of a business is different than a person conducting business. If you actually have a business yes you can recover your losses. You have net operating losses and to many others to list to help you get all your money back in one way or another. Then of course you have carry over profits (new toy money) to help generate future losses. To realize the benefits you need a C corp.

 

For the OP there are alot of reasons to stay far away from the "business" world. Then on the other hand there is no reason he cant sell a few items here and there to buy toys.

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Exactly!
 

That's why I recommend getting your numbers together and getting the advice of a pro.

 

I think juicegoose's original question was should he start a business or not?
That decision is different for everyone's individual circumstances. So the only way to know what he should do is get his numbers together and go visit somebody who specializes in this sort of thing.

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No matter what "professional" accountant or lawyer you talk to they are all going to tell you the same thing. You need to run your business legally, they have to they dont want to loose their licenses. They will all tell you sole proprietor ship is a bad idea because you need to protect your personal assets. An accountant will likely tell you to go LLC. A lawyer will tell you S corp. A business person will tell you C corp.

Your not at the stage where any of the above could ever protect you from anything. The LLC would do absolutely nothing to benefit you in any way. The S corp would also do nothing for you. The C corp would give you the tax benefits of a large corporation.

Now you have the state and local authorities. Here for example flee markets have a retail exemption because the business are so small. Meaning as long as you ONLY sell at the flee markets under 12K per year you do not need a UBI. BUT they do expect you to collect or at least pay the sales tax to the state irregardless. The farmers markets are another story because you usually lease the booth space for an extended period of time. That would put you at the retail level so you would need a UBI.

 

First you need to contact your state. Whoever handles licenses and ask them here it is DOR. If you need a license because you have the volume then you need to decide how to set up your entity. If you find that you need no license then you can run as a hobby. This lets you write off your direct COGS on only things sold but thats it. No tools, msc supplies or depreciation. If you run this way all they, meaning the feds ask of you is to keep a ledger and claim the sales as income.

 

Start with the state and move on from there.

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