So yeah, I have wanted to be able to post the best pictures possible for whatever I put on Etsy. I've also mentioned not being sure about how I should price stuff. These are small problems frankly and not what scares me the most. I've now discovered and decided to spell out what's been holding me back. Every time I feel gung-ho and think, "This time I'm gonna do it! I'm ready! Look out world, I'm coming atcha!" I then read stuff on needing a seller's permit, collecting sales tax, keeping records, etc. and I want to curl up into a ball and hide under the nearest rock. It's all really daunting. It really is. …or is it just me?
I have so many questions such as: I have to keep receipts and keep records of all the supplies and stuff I buy for the "business" but what about all the supplies I have from when I began as a hobby. I mean really, I think that when someone starts to sell their crafts, it's not usually that they start out saying, "You know what? I don't have any supplies right now nor have I ever done it before, but I'm going to go buy all this stuff to make [insert craft here] and start a business selling it." So magically they'll have all their receipts all nice and neat and be able to keep track of everything.
I think most of the time, people get interested in making something, they do so for themselves and if they think they are good enough, for family and friends. Eventually, with proper feedback, they think, "maybe I can make a bit of money selling these…" or they frequently hear from others, "hey, you oughta sell these!" Sometimes, in the case of jewelry, someone will want to buy something right off of your body (it hasn't happened to me but I've heard about it happening on many occasions). They then bring their wares into the office, maybe have a home show, go beyond just friends and sell to friends of friends. Their stuff is popular and so they decide that maybe they can make a business out of it and eventually make a living out of it, one hopes, fingers crossed, wishing on a star…
This is how I imagine it happens a great majority of the time. So then it evolves from a hobby into a business. This is where it gets sticky. All of a sudden you are obliged to keep pristine records of everything you buy, everything you sell, all before you know if you're even going to be successful or not. You think, "what if I only sell 2 things in a year, and those things only cost 5 bucks?" …or whatever measly amount. There are also other things to consider such as what do you do with the profits? You don't put it ALL back into the business do you? You have to pay yourself. How do you pay yourself? What percentage of the profits. If you bought all this stuff while it was still a hobby, how do you report it? If you don't have record of the cost of all the stuff you bought, how do you even know if you are making a profit? Another big question on my mind personally is that I am a full time student who gets financial aid. What effect will that be on my getting financial aid? And aside from the already daunting task of filing taxes for the business what effect will it have on filing personal taxes? I feel like I have to hire a freaking CPA just to make sure I'm doing everything correctly, because I'm sure there's going to be some rule that I missed while reading tomes of regulations for all this stuff that's going to result in my being in seriously hot water.
I was feeling confident earlier today and then tonight I read an article on Etsy entitled, "Everything you need to know about sales tax". Um, no it's not. How can it be when every state and county has different rules and regulations? You can't possibly have all the answers in one short article. But it was all the comments that I read that really got my brain throbbing and freaked out. Aside from the glib "thanks for the info" responses, there were comments from many confused people. Seeing so many confused people struck a hard blow to my confidence as I realized that I was having the same questions and not seeing any real answers. That article led me to look up other articles and sources of information which just led to more questions. For now though I'm going to put the topic to bed for the night in hopes that my brain can stop hurting and I can get some sleep.
it's just you.
ReplyDeleteI thought I was going to make this a full time thing and I got my resellers licenses. I went to my CPA, yes I had a CPA. I filed my taxes and paid on what I sold.
I only sold 2 - 3 items a year, paid maybe $5 in taxes, if that, and the CPA never once asked for receipts of anything. I think I remember a friend accountant telling me that if I did this full time and was SERIOUSLY a business, where I did it every day, set amount of hours, advertising, faires, trade shows and all that then yes it's a business. If for now i'm doing it faires and shows maybe 3 times a year... it's still a hobby and there is no benefit to reporting.
I'm on etsy, no resellers license, no sale tax. Why should you pay sales tax to the IRS when you are paying sales taxes on the items you are buying to sell? I say it evens out at the end... so just stop worrying and post your stuff. if you keep receipts, great. when you do get questioned you'll have that already and you'll have paypal (from etsy) to back your sales and paypal costs along with with etsy costs.
oh yeah and you pay yourself 1/3 of the yearly net sales, which means for a few years you'll spend time losing money to pay yourself back for tools and utilities. so for now it still evens out.. in my head and for me anyway.
SO POST YOUR STUFF ALREADY!
I think you have to collect sales tax, but you have 3 years to decide if its a hobby or an profession and pay income tax. But even the sales tax, wait to get it until you see if you sell anything. There are a lot of etsy sellers on The Hive if you want to join
ReplyDeletehttp://creatingthehive.com/signup/woodthrush
and ask more questions there.
Thanks so much for the comments! I think maybe I just need a little help wrapping my head around all this and the comments, here and elsewhere, are helping.
ReplyDeleteI forget the name of the book, but there's one on marketing and selling your jewelry available through Interweave Press that I think you should buy and read. It covers all sorts of topics like how to price your jewelry, how to market it (it's a little behind the since social networking on line is the rage), how to have jewelry parties, etc.
ReplyDeleteAs far as record keeping goes, do the best you can and then don't worry about it. The materials used can be estimated if you don't know how much they cost. Also, Etsy has a link to another service (free) where you can start entering your purchases and sales as you make them, and then it will calculate what you owe in the way of taxes. The best part is that if you buy or sell through Paypal on line, you don't even have record the transactions; it's uploaded regularly for it. And it fills out your tax forms specific for your business!
If you're worried about making a profit or not,you're not charging enough for your work. I use the following formula (out of the book) and I sell plenty, even high-retail items:
1.) Keep track of your labor time and give yourself an hourly wage. Most beginning beaders start themselves at $20 per hour.
2.) Add the cost of materials in.
3.) Add an "overhead" charge... this covers gas and entry costs for shows, rent on your space, etc. While I was working out of home, I just used $5.00 per item as my overhead.
Add these up and you have wholesale value.
Double the price for retail. That way, you make money for the time you spend at trade shows, photographing and listing your product, and if you get approached by a store, you have room to back down on your prices and give them a wholesale rate, all the while still making your hourly set wage.
As far as loans go, you will have to check and see how income affects them, but I've lived on disability for many years and they always stipulated that I could make "X" dollars per month without penalty. I can't imagine that your loan would be any different.
For now, though, just take a "best guess" at what the value of your already-made jewelry is worth, at the materials you don't know the value of are worth, and move forward. The worst you can do is mis-estimate and trust me, it happens all the time.
The worst mistake you can make is to under-price your work because you don't value your time enough. You not only hurt yourself that way, but you also hurt all the small artists working at their respective crafts. You need to charge enough to make money for yourself and to earn respect for what you do. Trust me, you'd be amazed at how much people will pay for jewelry that they like, even in this economy. It's the one small splurge they're still willing to make.
It's natural to be afraid... I am every day. But ignore it, go forth, conquer, and sell jewelry!
Better do some research of official sources or get some professional advice... some of what you have received here is wrong and could cause you some hassle, perhaps only minor hassle.
ReplyDeleteOne example -- the IRS neither charges nor collects sales tax. You'll deal with them on income tax and FICA (social security), but some states, counties, and munipalities deal with sales tax. "Don't report because it is a hobby business" is something you may get by with on a small scale, but it is not legal. And, you can likely get by with estimating costs of components, unless you are audited and required to provide supporting documents.
Yet, even so, the record-keeping requirements are not burdensome for a small business and, generally, you are not required to collect sales tax on sales shipped/mailed to buyers outside your state.