SuperNaturale

Meegie · Joined: 09 Apr 2004 Posts: 1029 Location: pittsburgh

I've been thinking about using some of my stash fabric up by sewing some skirts and selling them on etsy. Just a few to start. But I have definite plans of making it a regular thing if it goes well.

I have always had plans to start a crafty business, but I want to dip my toes in the water first.

My question is: at what point should I "legitimize" my operation by registering a name/registering as a business/filing taxes/etc, for my etsy shop? At what point does it legally go from a "hobby" to a business"?

I'm just asking for future refrence. I've always been curious.
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checkersumthing · Joined: 07 Apr 2004 Posts: 2942 Location: Montreal, Qc

gloomy · Joined: 24 Jun 2004 Posts: 122 Location: ontario

I believe in beginning as you mean to go on.

It's going to be a lot easier to keep good business habits if you do it "correctly" from the start. Keep track of everything. Everything!

I believe in Ontario you can get your business license/tax ID online for no cost. As long as you're current with your personal income taxes.
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gloomy · Joined: 24 Jun 2004 Posts: 122 Location: ontario

I'm not sure why I thought you were in Ontario, but I guess that info is meaningless in PA :)
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Gigi · Joined: 02 Jan 2006 Posts: 2915 Location: by the ocean

You have to report any income you make, whether it's from a hobby or from a business. If you make over $400 (or maybe $500), I believe you are supposed to have a business license, etc. but I'm not sure, so don't quote me on that. But you are supposed to declare and pay taxes on earned income, regardless of whether you consider it a hobby or a business.

However, the whole hobby vs. business thing gets a little trickier when discussing deductions. If you decide that selling skirts is a business, then you can deduct business expenses, like fabric, sewing machine repair, shipping supplies, etc. In order for the IRS to consider your business a business and not a hobby, they first perform an "objective test," where they see if you are turning a profit. First year loss is expected, but they expect you to turn a profit two out of every five years. However, even if you meet those conditions (or if you don't, and they need more information), they will look at things like how you conduct your business (do you keep records? do you advertise and market?), if you adapt your business to help it improve and grow, etc. You can get in big trouble for claiming non-business things as deductions.

IrmaVep · Posted: Mar 30, 2011 3:18 am Post subject:

Have you considered using up your stash on prototypes, maybe giving those to friends while you work out what you're going to make.

Then once you've go that sorted, give yourself a budget to go buy some fabric for your business, and from that point, start keeping every single receipt.

And set yourself up a spreadsheet, with everything broken down into things like different types of materials (fabric, interfacings, thread, zips etc etc), and other expenses like listing fees, advertising, all those sorts of things. Remember that you're going to have to do stuff like stocktaking, so work out how you're going to deal with keeping track of what you have on hand. This is stuff I wish I'd known before I started!

Our tax department is really good - I can call and ask questions, and they will tell me what I need to do. They even have a small business consultant who will come and give you advice (my hub got them to go through everything for him, as he does contract work). You should call yours and get the right story at the start, so you know what your obligations are.

mk.carroll · Joined: 08 Mar 2005 Posts: 443 Location: Honolulu

What I wish I'd done at the beginning I only got around to last year - I went to a major bank and opened a business account.

What I'd done at first was use my personal bank account while tracking my business expenses and income with financial software. Don't do that. Then I went to my small credit union and opened a super-basic business account (the only one they offer). It was okay, but turned into a problem with things like not being able to accept wire transfers (which became an issue when I sold a photo to a European art magazine that only sends payment as a bank transfer).

The big bank I now have my business account with offers good options for small businesses, and the bank officer I sat down with made sure I had all my state paperwork in order (and it turned out that I hadn't successfully filed at least one piece of paperwork, so she did it for me right there and then).

I'd recommend checking with the bank you use now and other banks to see what kind of business accounts they offer. My state government website is setup to walk you through the process of filing all the necessary paperwork for a small business (although, as noted above, I still managed to not complete the process correctly on my own). Some states also offer workshops and programs specifically for women starting a business (although with the recent economic downturn, some states may have put these programs on hold).

In my opinion it's better to go through the process of getting a business account and getting your state paperwork done and maybe not really need it than to start dabbling and then have to scramble and backtrack.
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SeraAngel · Joined: 08 Apr 2004 Posts: 342 Location: Montreal, QC