Paracord Business

If you decide to move beyond merely hobby-level creation and start selling your crafts, you'll be entering an arena filled with a great deal of confusing information. This confusion is compounded by the fact that every state is different, and there is no shortage of self-proclaimed experts who will lead you astray. Before we get into any detail, we need to put forward a caveat - if you are unsure about your obligations, talk to an actual paid expert in your local area. An accountant or lawyer who works with small businesses will be able to give you real detailed information for your particular situation. This page will try to give you some guidance, but only in general terms for state-level issues. Federal issues are simpler, so we'll look at them. Now, with that out of the way, let's look at some of the general rules about becoming a small business.

Small Business Basics

At a very basic level, if you're selling anything, most states require that you collect and file sales taxes with the state. This will usually require that you get a sales tax form, and may also require other reporting or licensing obligations, depending on the state. In many states, there is no business license for small businesses that just produce crafts for retail sale, but you really need to check your own local laws.

If you live in the USA and make a profit, the IRS requires you to report that as income and pay taxes on it. Those taxes will be higher than you might assume, because as a self-employed person, you don't have a company paying part of the Social Security taxes, which means it's your responsibility.

In order to fulfill these requirements, you will need to keep records of your sales and expenses. Do not create something fictional, but don't short-change yourself either. Remember to consider postage, craft show fees, and all your supply expenses as debits. Assuming that you're making all your own material, you'll be considered a sole proprietor. This is the simplest small business to address, as you don't need to create a new federal tax ID. The benefit is simplicity; the downside is that all business liabilities are your personal liabilities.

Federal Reporting Requirements

If you are the only one working in your business, you will probably be defined as a sole proprietor. A sole proprietor is treated as a self-employed person using his or her own Social Security Number as the business tax ID, and if you have to file taxes normally with the IRS (which most of us do), you'll need to include your business income on your forms at the end of the year. If you are not required to file taxes normally (maybe you're a teenager or just make very little money), you have to file federal taxes if your business makes a profit of $400 per year. The IRS has a Self-employed Tax Center that can help you understand this requirement. If someone tells you that you don't have to report your business income unless it hits a specific threshold, they're not exactly wrong, but they're not exactly right either. Bottom line, if you have a day job and file taxes, include your business income no matter how small it is.

Estimated Taxes

If you don't make more than a few hundred dollars per year, you can probably get away with just adding it to your taxes at the end of the year. But, if you make over $1000 and don't report it until your annual filing period, there's a very good chance you'll be subject to an underpayment penalty. To avoid this, most small businesses file quarterly estimated taxes. The IRS Estimated Taxes page can give you more information on what forms and what system you need to use. If you expect to earn more than $1000 in the next year, get smart on estimated taxes and get set up to file every quarter.

State Requirements

Sales Tax

This is one of those things that can be ludicrously complicated. Any state that has sales tax is going to require that you collect it and pay them. If you're in one of the four states that have no sales tax (Delaware, Montana, New Hampshire, and Oregon), you are lucky. If you're in Alaska, which has no state sales tax, you might still have to collect sales tax for your local municipality. Every state has their own requirements, and the requirements can vary depending on your personal situation. Some states require monthly reporting, others quarterly. Some will let you pay quarterly once you have a history of paying on time monthly. Seriously, this can get messy and anyone who does not live in your city who gives you advice is probably wrong to some degree.

If you sell in more than one state, you will need to collect and report sales tax in each state. This is another reason to keep very good records on what you sell and where. If you sell all in one state but in different counties, you may need to report the different location sales separately.

Licensing

There is no general rule here. Most states do not require anything more than a sales tax certificate to start selling crafts at retail. Some local municipalities have licensing requirements that can vary wildly. You may not need a license unless you have an actual store; you may not need a license of any kind; you may need a license even at a craft fair. There is no way to give generic advice here, other than to tell you to look it up and find the actual state or local requirements for yourself.