Tax ID #

[sachbvn]

For anyone that does the craft show circuit, whether you do it a little bit, or heavily. Have you ever run across any shows that require you to provide proof that you have Tax ID number for your "business"?

Well, wait a minute.... this may not be worded right..... lemme try to explain.

I've heard that at some craft shows or - independent designer type shows - they require you to show proof that you are charging/paying taxes on your sales....I'm not sure if that's by requiring a Tax ID# or what.... the purpose is (my understanding) to make it fair to all that participate.... if this guy isn't paying taxes on what he makes - he can sell cheaper than the guy across the way.... see what I'm saying?

The other question I guess.... how much can you make w/o really claiming it on taxes.... I mean legitimately - not "fudged" figures.... I don't really see this being an issue for me - but I have no idea what that amount is.


Thanks

Zac

[sdb777]

The way I understand it, and I'm probably wrong....ask my wife, it happens all the time!

If you paid taxes on the items you bought to make another item, the taxes have been paid. If you have a Tax ID#, you are allowed to purchase items without paying tax on them, but you must tax the 'end user'. If your selling you stuff to someone else so that they can sell it, they are responsible for collecting taxes.

If you have a Tax ID#, then you might as well get a LLC! This LLC is probably more important then the Tax ID#, because if someone hurts themshelves with your product then they can only sue you for what you claim as assets for your business.

But I'm no lawyer, so I maybe wrong......





Scott (wife says I'm wrong everyday) B

[TDHofstetter]

Well... an LLC will protect each of the members from lawsuits against any other member, but that's about it. It's used when three (or more) people WANT to form a corporation, but want protection against the misdeeds of the others.

A step simpler is an LLP (Limited Liability Partnership), for when you don't have enough cooperating members to form a true corporation.

Neither protects any individual from being sued for misdeed.

[maverick31]

here is what I was told about tax id and filing income taxes, I went down last week and filed a business name at local tax office. it was 9 dollars to register the name. I then went to another office and filled out a tax id request form. the lady told me that by getting a tax id #, I can legally not pay sales tax when I buy the ingredients to make what I sell. for example sand paper, glue wood, etc... however if i want to buy a laptop for my business I will have to pay sales tax on it. every qtr they will mail me a form to fill out and mail in the sales tax i collected when selling the items. I had to fill it out and list every place I plan to sell at, so that when i fill out my qtr forms they will pay the correct places for the taxes I collected. when it comes to filing federal income taxes this is a whole different animal. The tax id lady said she just works for the texas comptrollers office and I would need to check with irs to find out what those requirements are. I bet someone can help us with that part of it. I am planing to do 1 show in a month or two and then if it goes well i will do a bunch next year.
To answer your original question several of the shows I want to do require a tax id.

[Doug B]

I hope some of the more experienced craft show folks answer this too.

Just from my very limited experience, I have not had to have Tax ID for any of the Craft Shows, but the Farmers and Crafts Market does require it. That is probably because they have a fund that some of the sales tax goes to that is supposed to be used for the downtown area. They want to make sure you specify the correct area when you pay the sales taxes you collect.

I think you are going to need a Tax ID if you are going to collect sales tax, so you will need to have one even if it is not required by the craft show.

I would guess that requiring a Tax ID might very well be a very localized thing - some places may require it while others may not.

I suspect I am going to know a whole lot more about this particular issue by April 15th

[Joe Lyddon]

Zac,

What kind of taxes?

I will assume you're talking about Sales Taxes...

Here in Calif. we can get a Resale Permit (#) which is a free license to be able buy material Wholesale (without paying S/T) use it to Mfr. a widget, and then SELL the widgets where we then charge Sales Tax.

Depending what your volume is, you are required to fill out a Sales Tax Form where you end up paying the Sales Taxes that you collected from your customers as well as getting credit for Sales Taxes you paid (if any) on your purchases.

To do it right, you should get a Resale Permit...

You DO have to keep good records...

Now, if you meant Income Taxes, that's another can of worms! ;D

[sachbvn]

Dec 17, 2009 18:19:30 GMT -6 Doug B said:

I hope some of the more experienced craft show folks answer this too.

Just from my very limited experience, I have not had to have Tax ID for any of the Craft Shows, but the Farmers and Crafts Market does require it.

Doug, so you DO have a tax ID? Craft shows haven't required you to have one, but the Farmers Market DOES - so you DO have one, correct? Just trying not to miss something here.


Zac

[sachbvn]

Uhh.... ok - lots of info here.... I guess.... looking at it like this way.

It's to remain a "hobby" - and any sales are associated with the hobby. Let's say..... I sold $500 worth of pens in a year..... $1000.... $2000 - at what point does that "income" become a problem if not claimed on my income tax report?

Making any more sense? I guess the two questions were vastly different.....

Zac

[sdb777]

Well if your going to claim an 'income', don't forget the deductions! After all electricity, tools, lathe, sandpaper, etc...... all probably have equaled the income yet? Maybe?



I say you no longer have a 'hobby' when you accept card credits! Everything else to me would be a 'gift exchange'!!




Scott (here comes an audit) B

[maverick31]

I would check with a tax proffesional. I think if you yield a profit you will likely have to file, now what the magical number is I am not sure. It might be $5, it might be $5000 before you have to file. Not sure. Most hobby businesses actually loose money, if you lose money you may be able to write off as a loss, but I am not sure what the rules are.

[Doug B]

Dec 17, 2009 19:04:00 GMT -6 sachbvn said:

Doug, so you DO have a tax ID? Craft shows haven't required you to have one, but the Farmers Market DOES - so you DO have one, correct? Just trying not to miss something here.


Zac

Yes Zac, I had to have a Tax ID in order to get the permit for the Farmers and Crafts Market. My wife already had one from when she was an independent contractor, so we are using that for now - she never had to pay sales tax though, so that is going to be something new for us.

I have a CPA friend that we are going to talk to about the whole dang mess one of these days. I know it is going to be a real pain, but we are keeping good track of sales and expenses so that we can stay out of trouble.

[Ruffnek]

I got a Tax ID before I started doing any craft shows. You are right, too, in that many places require proof of a Tax ID to sell there. The Canton Trades Day event here requires one.

I get a form every quarter that I fill out listing all of my sales and I pay the appropriate sales tax. The lady at the local Comptroller's office in Tyler said that since my "business" was primarily a hobby, I could request a once-a-year form and just pay all the sales tax once per year. I intend to do that after I file my quarterly sales tax form this year.

I suppose I will also have to fill out a federal tax return on my "business" this year, too, although I did not make a profit. I'll be checking into that part. In any event, I keep all of my receipts for woodworking-related items and list them on a spreadsheet as well.

I suggest that you go over to the IAP site and either post your question in their "Marketing & Shows" forum or look through the archives there. That question has been posed several times and for many of those guys over there, doing craft shows is their living. You will get accurate, first-hand information there instead of speculation or guesses.

[sawduster]

Dec 17, 2009 17:57:32 GMT -6 sdb777 said:

The way I understand it, and I'm probably wrong....ask my wife, it happens all the time!

If you paid taxes on the items you bought to make another item, the taxes have been paid. If you have a Tax ID#, you are allowed to purchase items without paying tax on them, but you must tax the 'end user'. If your selling you stuff to someone else so that they can sell it, they are responsible for collecting taxes.

If you have a Tax ID#, then you might as well get a LLC! This LLC is probably more important then the Tax ID#, because if someone hurts themshelves with your product then they can only sue you for what you claim as assets for your business.

But I'm no lawyer, so I maybe wrong......





Scott (wife says I'm wrong everyday) B

Generally, in the context of selling at local craft shows and the like, a Tax ID refers to a permit issued by a state for purposes of collection and payment of sales taxes. Laws vary from state to state, but generally the tax ID also allows you to purchase materials used in construction of a product without paying tax on those purchases. I don't think there is any state that would allow you to pay sales tax on materials to exempt yourself from paying sales tax on the items that you make and sell retail. They are gonna want the tax based on the final retail sales price and don't care that you may have paid sales tax on your materials.

Also, generally speaking, you likely will have to have an assumed name certificate such as a DBA (Doing Business As), or some sort of partnership/corporation in order to obtain a Tax ID.

The Tax ID is also a different sort of animal than is a Tax Payer ID which is used for income tax and withholding tax purposes.

[Leo Voisine]

Tax ID # is simply so that you can collect sales tax on items sold. In return - you then claim the sales tax on those items you sold and submit the tax dollars to the state. That's all it means. It means you are a ligament, registered, business.

LLC?? Forget that. There is no reason to form any sort of corporation at a craft show level - unless you are hiring people to work for you - or there are some sort of liabilities that you need to protect your personal financial life from. Forming a corp will cost you several hundreds of dollars per year, every year - and you will need to generate profit statements for the state and fed gov., along with hundreds of dollars of submittal fees It will do NOTHING for you, at a small one man show.

You are a sole proprietor. No need to form a corp. You - and your business are ONE and the same. You need nothing more than your SS number, and you need no more that to file a form 1040 at tax time.

How much can you make without claiming it on your taxes? $0 dollars. ANY and ALL money you make from any sales or services is subject to "income" tax, by both state and federal.

Put it this way.
If you do a small "side job like painting a fence for someone, and get paid to do it, you are officially "in business" and have generated "income". You are "supposed to" claim that income on your income taxes.

If you buy something - then, in turn sell it at a profit - you have generated income and are requires to claim that income on your tax form at year end.

Do people cheat on their taxes - yes - all the time. Ots of people do "side" work - and never claim it.

Do some craft shows require a tax ID number - yes, but not all.

You can register business name and get a state and federal tax ID number very easy and at very low cost (less than $100). You do not need any more than that.

You definately do NOT need to form a corp.

Call me if you want - I think you still might have my phone number -- if not PM me and I will give it to you.

[Joe Lyddon]

How much can you make without claiming it on your taxes? $0 dollars. ANY and ALL money you make from any sales or services is subject to "income" tax, by both state and federal.

Income LESS EXPENSES = Taxable Income or LOSS

Put it this way.
If you do a small "side job like painting a fence for someone, and get paid to do it, you are officially "in business" and have generated "income". You are "supposed to" claim that income on your income taxes.

Income LESS EXPENSES (such as paint, brushes, travel, etc.) = Taxable Income or LOSS

If you buy something - then, in turn sell it at a profit - you have generated income and are requires to claim that income on your tax form at year end.

Sales price less Purchasing Cost less other applicable Expenses = Taxable Income or LOSS

You want to make and sell Pens:

Sales (Income) from selling pens.

Less Expenses:

Equipment Cost (Depreciation): lathe, sanders, etc., Computers.
Utilities: Power, heating, & Telephone
Advertising
Taxes & Licenses: Cost of Tax ID#, etc.
Truck & Auto: fuel, vehicle depreciation
Meals (if traveling away from home overnight)
Office: Postage, paper, computer ink, etc.
Display Equipment
Permits
Finishing supplies
...etc.

= Net Profit or (LOSS)
(Taxable Income or Loss)

Look at form 1040 Schedule C

Try to talk to someone that knows something about Bookkeeping or an Accountant.

It is a slight "can of worms"... but not too bad if you just KEEP RECORDS.

[Leo Voisine]

Dec 28, 2009 23:03:28 GMT -6 Joe Lyddon said:

How much can you make without claiming it on your taxes? $0 dollars. ANY and ALL money you make from any sales or services is subject to "income" tax, by both state and federal.

Income LESS EXPENSES = Taxable Income or LOSS




Income LESS EXPENSES (such as paint, brushes, travel, etc.) = Taxable Income or LOSS

If you buy something - then, in turn sell it at a profit - you have generated income and are requires to claim that income on your tax form at year end.

Sales price less Purchasing Cost less other applicable Expenses = Taxable Income or LOSS

You want to make and sell Pens:

Sales (Income) from selling pens.

Less Expenses:

Equipment Cost (Depreciation): lathe, sanders, etc., Computers.
Utilities: Power, heating, & Telephone
Advertising
Taxes & Licenses: Cost of Tax ID#, etc.
Truck & Auto: fuel, vehicle depreciation
Meals (if traveling away from home overnight)
Office: Postage, paper, computer ink, etc.
Display Equipment
Permits
Finishing supplies
...etc.

= Net Profit or (LOSS)
(Taxable Income or Loss)

Look at form 1040 Schedule C

Try to talk to someone that knows something about Bookkeeping or an Accountant.

It is a slight "can of worms"... but not too bad if you just KEEP RECORDS.

Best advise - get a CPA on your side.

Yeah - you can write off your expenses due to losses - but the amount of write off and the net value is really small. It depends on how much your sales are. Probably not really worth it.

A small independant CPA, is worth his weight in gold, for help with this sort of thing. I had a CPA doing all my payroll, IRS, taxes, corporation filing, income tax filing and so on when I had Mr. Handyman. He did all the corporation filing for me, and advised me on all sorts of business related stuff.

I used him to set up my itsy bitsy "Misha Custom Signs and Crafts" business. Cost me $80 bucks. Sure I might have been able to do it on my own but he did it real easy for me.

I still call him when I need help and he still does my income taxes for me.

Worth his weight in gold to me. As far as I am concerned - he has paid his way for the rest of my tax filing days.

Along with a decent lawyer - he helped me through the business bankruptcy too.

[Joe Lyddon]

Dec 31, 2009 18:54:20 GMT -6 Leo Voisine said:

Dec 28, 2009 23:03:28 GMT -6 Joe Lyddon said:

Income LESS EXPENSES = Taxable Income or LOSS




Income LESS EXPENSES (such as paint, brushes, travel, etc.) = Taxable Income or LOSS



Sales price less Purchasing Cost less other applicable Expenses = Taxable Income or LOSS

You want to make and sell Pens:

Sales (Income) from selling pens.

Less Expenses:

Equipment Cost (Depreciation): lathe, sanders, etc., Computers.
Utilities: Power, heating, & Telephone
Advertising
Taxes & Licenses: Cost of Tax ID#, etc.
Truck & Auto: fuel, vehicle depreciation
Meals (if traveling away from home overnight)
Office: Postage, paper, computer ink, etc.
Display Equipment
Permits
Finishing supplies
...etc.

= Net Profit or (LOSS)
(Taxable Income or Loss)

Look at form 1040 Schedule C

Try to talk to someone that knows something about Bookkeeping or an Accountant.

It is a slight "can of worms"... but not too bad if you just KEEP RECORDS.

Best advise - get a CPA on your side.

Yeah - you can write off your expenses due to losses - but the amount of write off and the net value is really small. It depends on how much your sales are. Probably not really worth it.

Leo, it can make the difference of paying Taxes or NOT paying taxes.

If you buy something for $50 and sell it for $100, you're saying pay taxes on $100... I'm saying pay taxes on only $50 ($100 Sale less Cost of purchase $50 = Taxable Income)... That's a difference of 50%, a significant sum worth doing. Yes?

If you sell a Pen for $40 and it costs you $50 in Expenses in order to make the & sell the pen, you would be paing taxes on $40... I would not be paying any taxes...

It IS significant...

EDIT:
I think this thread should be in another forum... It's not 'turning' related. ;D ;D

[sachbvn]

Leo - I did read your post, I do have your number and appreciate the input. I think I'm going to do my first flea market/show etc... and see how it goes. If this is going to be a for sure, making some extra money, kinda thing - then - yep, I'll talk to a CPA and find out what I should do.

Nice thing is - it's 2010 now, I haven't sold a thing, I will start keep all receipts and that way if they are beneficial, great, if not - not a big deal.

Zac

[lockman]

Leo pretty much said everything I would.
A GOOD CPA IS worth his weight in gold. My locksmith business that made money last year looked to be a pauper after the CPA got done with the spread sheets I sent him with sales, costs and equipment.
+1 for a GOOD CPA.