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Earthwood

Sole Proprietorship Or Other?

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Hi All,

 

I am at the beginnings of starting my business, and am wondering how other people have chosen to register their business and why?

 

Sole Proprietorship? LLC? Corporation?

 

What is more advantageous from a tax standpoint? Do you charge sales tax on your wares?

 

Right now I am in an awkward period of not really being ready to make it "official". It is still a hobby that I may or may not make money doing (selling to people within my social network - not charging sales tax at this point). I am still in the process of learning and developing my product prototypes, but feel there is no reason not to find a home for the stuff I have made while in the learning process. When do you make it official? Also, is it pretty much a rule that you can't accept credit card payments until you are officially registered?

 

Thanks,

 

Sam

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In Canada, it costs a fair bit to get an incorporated company up and running (legal fees, etc). Plus the tax filings, etc are much more complicated and often require accountant assistance - another added expense. The reasons for having an incorporated company are primarily to do with taxation (the business income is separate from your personal income and business tax rates are often lower than personal income tax rates) and liability. We started an incorporated company for my husband's business (building and construction trade) due to liability concerns.

 

For my pottery business, I chose to do it as a sole proprietorship. It was simple to set up and simple to maintain. With a sole proprietorship, your income from the business is considered to be part of your personal income. If you are just starting out, I expect your expenses will exceed your income for some time and even if they don't and you're like the majority of us potters - you aren't about to make a ton of money :>). From a personal tax perspective, it will most likely be advantageous to have the additional write-offs/loss. Plus, at least in my case, my accountant fees are a third of the cost for my husband's business.

 

Hope this helps.

Brenda

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It is my understanding that in the USA there is no tax advantage to an LLC over a sole proprietorship.

BUT ... I am not a CPA so take that with a grain or two of salt. Check with a tax professional.

 

I became an LLC to separate my assets from the pottery's assets in case of litigation.

If somebody wants to sue me and seize my assets, they'll have to hire a truck and haul some clay! <G>

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Sam,

 

On the advice of my accountant when I became self-employed in 1996, I am a sole proprietor and have no plans to incorporate.

 

There are no tax advantages with incorporation. The only advantage (as Chris mentioned) is to protect your personal assets from liability. But as my accountant pointed out, there are no inherent liabilities to this type of business. (just don't go infringing anyone's copyrights, ok?)

 

Just to confirm what Brenda said, my accountant's tax preparation fees are much lower for a sole proprietor than a corporation. Even if you are planning to do your own taxes instead hiring an accountant, that should give you an idea of how much more work a corporation's tax return requires.

 

Sales tax is a completely different subject. Sales tax is collected by your state, not the federal gov't. If you are ready to expand your sales beyond your friends, then it's time to get a sales tax license. You don't have to be incorporated to do so. I can't speak for other states, but in my home state of Maryland, it is free to have a sales tax license, and the process to get one is a breeze. There's no reason not to do it. And there are lots of art festivals that will require you to have one. Just google the words "sales tax license [your state]" and you'll have this taken care of in about thirty minutes.

 

Regarding credit card payment processing, again you don't have to be incorporated to get a merchant account. There are lots of services that will provide credit card processing to individuals.

 

Some unsolicited advice ... depending on your bank and your local laws, you may not be able to get a "business" checking account unless you are incorporated. But for a one-person business, you can accomplish all of your banking needs with a personal checking account. And you can save on all the fees that come with a business bank account (again, this is advice from my trusty accountant).

 

One last piece of unsolicited advice, when you are ready to feel "official," learn how to use QuickBooks (or something similar) and start keeping your pottery business records that way.

 

Good luck!

 

-Mea

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When I sell pots or my wife does consulting it needs an IRS filing for self-employment. Since we take our taxes to the CPA each year one or two additional figures aren't going to affect the hourly rate. It gets a bit more complicated if you want to use business deductions or scheduled depreciations. Actually, if your start up costs are considerable, you can report losses for 3 years unless the rule has changed. In otherwords you can spend more on kilns, wheels, and other toys all of which go in the debit column, your sales figures, workshop fees, other income from ceramics go in the credit column, and from that either you make a profit or post a loss.

- h a n s e n

 

Sam,

 

On the advice of my accountant when I became self-employed in 1996, I am a sole proprietor and have no plans to incorporate.

 

There are no tax advantages with incorporation. The only advantage (as Chris mentioned) is to protect your personal assets from liability. But as my accountant pointed out, there are no inherent liabilities to this type of business. (just don't go infringing anyone's copyrights, ok?)

 

Just to confirm what Brenda said, my accountant's tax preparation fees are much lower for a sole proprietor than a corporation. Even if you are planning to do your own taxes instead hiring an accountant, that should give you an idea of how much more work a corporation's tax return requires.

 

Sales tax is a completely different subject. Sales tax is collected by your state, not the federal gov't. If you are ready to expand your sales beyond your friends, then it's time to get a sales tax license. You don't have to be incorporated to do so. I can't speak for other states, but in my home state of Maryland, it is free to have a sales tax license, and the process to get one is a breeze. There's no reason not to do it. And there are lots of art festivals that will require you to have one. Just google the words "sales tax license [your state]" and you'll have this taken care of in about thirty minutes.

 

Regarding credit card payment processing, again you don't have to be incorporated to get a merchant account. There are lots of services that will provide credit card processing to individuals.

 

Some unsolicited advice ... depending on your bank and your local laws, you may not be able to get a "business" checking account unless you are incorporated. But for a one-person business, you can accomplish all of your banking needs with a personal checking account. And you can save on all the fees that come with a business bank account (again, this is advice from my trusty accountant).

 

One last piece of unsolicited advice, when you are ready to feel "official," learn how to use QuickBooks (or something similar) and start keeping your pottery business records that way.

 

Good luck!

 

-Mea

 

 

 

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an LLC means if your sued they can not take your house etc....

 

 

This is true, but ask yourself, why would anyone sue a potter for such an amount that would risk the potter's house? There are lots of businesses where it's possible to make a very expensive mistake. But potters are not in that boat. Does anyone know of an example where a potter was sued for a large amount? If so, please share it in this discussion. I'm happy to admit that I'm wrong if there is a real-life example to follow.

 

My advice to aspiring business-people is to be rational, make your decisions based on analysis, not fear.

 

 

-Mea

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