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Curious about the business of selling stuff, should it ever come to that LOL  

 

I prefer off-the-grid barter myself, but I know there are financial rules when one transacts business with the public. So....with things like Etsy stores, and personal websites with PayPal mechanisms, or using the Square at craft booths and so forth, does one have to be a certain type of registered or licensed business??

 

At some point I will do all the necessary homework and talk to the proper "authorities" for running a legitimate small business, but before I even open my mouth I'd like some idea as to what I might be getting into. I would be looking at online and out-and-about only, not bricks & mortar. And we're talking minimal money, for sure.

 

Thanks in advance! 

 

 

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1. Obtain a state sales tax number . . . so you can give the governor his/her due.

2. I use ProPay for credit card transactions . . . they have a reasonable fee structure. You can get their version of Square for your smartphone. They also have a service that allows for website payments (I've not used that, though).

3. Liability insurance . . . a badly performing $20 mug should not become a $500,000 lawsuit that takes your house, belongings in settlement. Check with your homeowner insurance to see if your "business" is covered or what needs to be added, if you work from home.

 

And, Meatloaf's sage advice, "two outta three ain't bad", doesn't apply.

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Agree with the above and I would suggest if you are going to be selling regularly throughout the year then set up a Limited Liability Corporation (LLC) Then just make sure you always put the ',LLC' next to your name on checks and when writing invoices or correspondence.

 

The LLC notation declares to the world that liability stops with the business and you as one of the principles are not personally liable so they are doing business with you understanding this. There are tons of internet resources on this so surf around and get familiar. It may seem complicated at first but its not and a single individual can set one up as well as a group and it is a great alternative to running a sole proprietorship when it comes to any business selling a product of any kind. You will likely have a state filing each year and taxes to pay but only need to add to your federal return if you exceed a certain dollar amount. last year that was $400.

 

You can likely do it all online in a couple of hours at your states corporation portal and simply file an annual report, pay an annual fee and file some specific reports if some things change (such as your address or business name etc.)

 

Also keep in mind that the IRS will not allow you to write off expenses beyond revenue offsets if your business is considered a hobby business so if you are just operating a side business to pay for your supplies and direct cost and are not trying to grow a business concern then limit your deductions to revenue.

 

here's a link on that:

http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions

 

Good luck, I hope you make a bunch of dough ;-)

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Definitely get yourself a sales tax license with your state (if your state collects sales tax, some don't). Then you'll need to add a Schedule C: Profit and Loss from Business to your federal tax return. You can probably download a copy and read it over, it's not hard at all. List your income here, your expenses here, subtract B from A, pay us taxes on the net result.

 

There's nothing wrong with establishing an LLC or an Inc., but it's also not necessary. I had this discussion with my accountant when I first became self-employed. This type of business doesn't put you in any risk of liability. The only difference it would make for me is that I'd have to pay him to prepare two tax returns instead of one. There's a lot to be said for keeping it simple. I like the way he put it, something like "that piece of paper won't make you a real business. You're a real business right now."

 

That being said, if anyone has an example of a pottery business being sued for liability, then please add it to this discussion. As far as i know, this does not exist.

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well the benefits of an llc is not related to pottery but rather small businesses in general. I think many feel it is a much better setup than a sole proprietorship and adds some much needed protections for a person doing business with the general public in any way. It's really is not a big deal. The online paperwork is so fill in the blank as to be just a normal forms we are all used to filling out. The annual fee in my state is $70 and I just check a box if there are no changes. Other than that I have to pay a company called a registered agent to be an official contact for my llc at an annual cost of $125. Everything else like federal taxes and sales tax is pretty much the same as a sole proprietorship. 

 

I'd research it before blowing it off as too much because if your running a business, even a side business, as a sole proprietorship you are passing through everything to yourself personally, everything, not just pottery issues someone may have but everything related to that business go directly to you as an individual. It's of course not a problem til it's a problem and there are slews of examples of small businesses of all kinds getting into legal and financial jams.

 

Here's a decent article that discusses llc's:

http://www.entrepreneur.com/article/72134

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We are not talking about small businesses in general. We're talking about pottery businesses. Where is the liability?

 

Everyone can decide this for themselves, but for me a $70 annual fee, plus a $125 annual fee, and a second tax return, are not worth it.

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For me an LLC means anothef tax return-just as dos a partnership-so that cost alone $300-$650 is not worth it.Sole proprietor is the way to go with small pottery business.

I would rather spend $325 for a liablity policy which protects me and also a few shows I do need me to have one to do the show. The LLC will not work for them so I would need the business liability anyway.

I also suggest a state resale #. You may also need a business license for your city? This is not the case everywhere and needs to be looked into.I do not have one for my county but have to buy a quartly one frora city I sell in .

Mark

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not meaning to argue with you guys on this (but I am :)) We obviously disagree and that's OK. 

 

All business structures have pros and cons and I don't think an LLC is much more of a stretch for the average person than a sole proprietorship in regards to complexity or filing requirements. I wouldn't let a couple hundred bucks of fees be much of a factor in the decision. There's no 2nd tax return that I know of and you can file your federal taxes the same as a sole proprietorship. The annual report is nothing more than re-filing (online checkbox click if nothing changed such as ownership, business names etc.) together with my $70 credit card charge.   

 

As far as liability as a small business? There are lots of them if you deal with the public,  conduct regular business with other companies, run business bank accounts etc. you and your business are always at risk of being directly or indirectly sued.

 

Anyway there is a ton of information out there on this topic so I don't think anyone should dismiss it out of hand without spending a little time reading all the pros and cons. Like I said earlier, its not a problem doing it as a sole proprietor until it is and then its too late so I would recommend making the decision based on knowing all the ins and outs.  

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Why I became an LLC ....

Outdoor craft show, stupidly had a votive candle burning for effect ... Lady picks it up and spills hot wax all over her hands.

Indoor craft show, child picks up object, drops it and quickly stoops down to grab up broken pieces.

Luckily neither event led to anything but apologies and smiles .... BUT ... I went home and registered to be an LLC first thing Monday morning. Over reacting? Maybe, but it's easier for me.

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Stephen,Chris you have my interest up and I will talk to my tax account about this next year. That way I will get his take on it..
My business has over 40 years behind it now but I am open to new twists if they have value.Hate to loose my estate over a few letters(LLC)
Mark

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This is not said to scare people ... it is a point of view to share about what you might want to consider to protect yourself.

I've never been sued either in my 25 years, but I imagine if someone was pretty determined they might find away around any protection I think I have.

You have to determine for yourself what level of risk you are comfortable with.

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That's a good way to put it Chris. The LLC issue is all about risk comfort and risk management. In my book, the best way to get comfortable about risk is to understand what your risks are. Real risk, not remote possibilities. Like I said before, a pottery business has very few liabilities, and they are either very remote, or well within our control.

 

That's the way I see it. Everyone else can make their own decisions about it. I'm going to take the money I save on LLC filings and buy tin oxide instead.

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Hey Mark, I was sued a couple of times over some pretty silly stuff in a 10 year non-pottery small business. Neither went the distance but both cost me 4 figures to defend until they went away. One had a relative who was an attorney and that one cost me the most to defend because the guy's uncle kept filing crap since it cost him nothing. That one was a new driver who claimed he injured his 'breast plate' stretching after he got out of his truck but before he actually did anything. We never did really understand why he came up with that and it was not real. The other was a customer who was making a ridiculous claim. This was over a 10 year period and although there was only a few of us in the early days the company did grow to twenty five or so employees and we had 1500 customers so yes we certainly had more exposure than someone selling pots on weekends. But with annual sales and pots going to stores I certainly wouldn't run it as a sole proprietorship. I just do the couple of pieces of extra paperwork myself so I don't pay accountants or attorneys to do anything so I have no ideal how much that would cost, my extra cost is a couple  of hundred bucks a year.

 

I am absolutely certain that our two suits were not from legitimate issues but us just coming across people that wanted to get a quick settlement from us and move on.  If you don't have anything of value (you rent and don't own any big dollar assets) then maybe a SP is OK.

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If you don't have anything of value (you rent and don't own any big dollar assets) then maybe a SP is OK.

Well I do own everything-all paid for-as I just am working on our trust papers now I know more than usual about my assets.

Thanks for the suggestion.I do not rent anything by the way and I do have a few big dollar assets .

Mark

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No one has responded to the question of whether one has to be a licensed or registered business to get and use a Square card reader. No, you do not. Go to Square.com, sign up, provide a checking account number so they can automatically deposit the funds (less their commission) in your account, and they will send a free card reader. Voila! You're ready to take credit cards. You are supposed to collect the appropriate sales tax for the site where the sale is made, so even if you live in South Carolina, for example, if you do a craft show in North Carolina you will need to get a tax number from that state. You can do that online at the state's Dept of Revenue website. Some states may charge a fee, but I've never encountered one. The Square is ridiculously easy to use and to keep records with - you can even use it to keep track of your non-credit purchases.

 

To my knowledge, there is no daily limit on the sales made with a Square. I do know that I've taken $3500 in charges on the Square at a six hour show with no problem. There is no monthly fee with a 2.69% commission on each sale. I recently applied for a Payanywhere card reader (because they offered the first 2000 in sales commission-free) and they have different requirements if you choose to call yourself a business or an individual. Unlike the Square, they took 24 hrs to approve me and then set ridiculous limits of $20 per sale and $100 per day!

 

Twenty-five years ago you could sell through craft shows without accepting credit cards, but I suspect it's nearly impossible now. My items range from $70 to $1000, and 90% of purchases are made with credit cards. However, if you sell $5 items, I'm sure that percentage would change.

 

Jayne

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  • 2 weeks later...

What I lack in pottery knowledge I make up in knowledge about piercing corporate veils, so if you are going to form an LLC you absolutely must:

 

(1) Have a completely separate bank account for your business that you use for your business expenses and income. The safest way is to have it be in a different bank than your personal account. That makes it easier to keep track of and reduces the temptation to transfer funds from one to the other. Comingling of funds is an easy way to lose your LLC protection.

 

(2) Remember that the only thing the money in your business account is used for is business stuff. Don't be buying groceries or gifts or personal/household stuff out of that account. Personal use of LLC funds is another simple way to lose your LLC.

 

(3) Yes, you actually have to have that corporate annual meeting you say you are having--even if it is just you. Failing to have the meeting and failing to take and keep corporate minutes of the meetings generally means you'll fail to have the protection of the LLC.

 

(4) If you lend money to the LLC or borrow money from the LLC, you'd better get it all down in writing, call a corporate meeting, take a vote, make a record and charge interest. Sounds like a waste of time but that's the way it goes.

 

In the eyes of the law, "corporations are people, too" and if you fail to keep and treat your LLC as a separate entity then don't be surprised to find that someone is going to be claiming your LLC is really just a sham and you, the shareholder, should be personally liable for any damage.

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Hey Tre,

 

All good advise but I don't think you are right on the annual meeting if it's just you or you and your spouse. I do understand though that your state may be different than mine.

 

Here's a good link talking about this and if the LLC is a partnership (other than spouse) it is obviously a good idea. 

 

http://www.nolo.com/legal-encyclopedia/are-llcs-required-hold-meetings.html

 

here's a paste of their opinion:

 

"The limited liability company (LLC) has become very popular because it combines the limited liability of a corporation without the same strict corporate formalities. Holding meetings is an important part of owning an LLC but it is not a requirement. Additionally, a failure to hold these meetings will generally not result in a loss of liability protection."

 

 

One  other thing I would add to your list is the need to put 'LLC' following company name on checks, invoices and other company paperwork and communications. This is integral to the process because it is this designation that puts those who do business with you on notice that the company is a limited liability corporation. 

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Hey Tre,

 

All good advise but I don't think you are right on the annual meeting if it's just you or you and your spouse. I do understand though that your state may be different than mine.

 

Here's a good link talking about this and if the LLC is a partnership (other than spouse) it is obviously a good idea. 

 

http://www.nolo.com/legal-encyclopedia/are-llcs-required-hold-meetings.html

 

here's a paste of their opinion:

 

"The limited liability company (LLC) has become very popular because it combines the limited liability of a corporation without the same strict corporate formalities. Holding meetings is an important part of owning an LLC but it is not a requirement. Additionally, a failure to hold these meetings will generally not result in a loss of liability protection."

 

 

One  other thing I would add to your list is the need to put 'LLC' following company name on checks, invoices and other company paperwork and communications. This is integral to the process because it is this designation that puts those who do business with you on notice that the company is a limited liability corporation. 

 

Good suggestion, Stephen. Using the LLC on everything is a good habit for sure. Should have added that to my list!

 

As for the annual meeting, while not having one is not fatal it is certainly still a good idea. Most courts have a list of ten or twelve "factors" that they look out to determine whether or not the LLC is a sham. The more you are missing the worse it is; the more you have, the better. I always recommended annual meetings as a great way for those in charge of the LLC (even if just one) to take some time once a year and think about the company, its future, etc. Certainly take the advice of your lawyer as s/he will be in the best position to give you advice that is relevant to your situation and appropriate for your state.

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LOL   I am a trained and experienced expert at holding meetings, including with just myself. I have those frequently, as a matter of fact. I find the notion of 'corporation as person' so offensive to the general morality of the universe that I refuse to entertain a moment of thought on that subject. I read 1984; I know who Big Brother is, and what he is up to. 

 

FYI,Legal Zoom has an auto-process for creating an LLC (specific to your state) that is super. Since I have nothing to sell and won't for a long time, I am deferring for now and will just consider myself a sole proprietor...of myself.

 

I will take John B's advice tho, and not mix my Two Steps Forward "identity" with my ceramic and other art work. I will just be me, and "stand by" my name.  Even if my last name is Russian Yugoslav from my ex-husband and bears no relation to me anymore. My maiden name (which I believe is Welsh) doesn't bear any relation to me either, tho, being that of my father's step-father, and thus having no relation to my father, whose original last name was abridged Greek (Tsak, from Tsakinopolis, unless that is a family fairy tale). Apropos of nothing.

 

Thanks for all the feedback.

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