Selling Soap Questions

[Mothi]

I have been planning on selling various homemade things for toy sized dogs (since I have toy dogs). My plan is to make clothes (hopefully including my own design silk screening), blankets, possibly wooden furniture, and of course soaps.

What I want to know is, what does a hobby seller need to know? Since I don't plan to go into business yet, I don't need permits and such right? How much can a hobby person make before you have to think about paying taxes on sales? My mind always thinks about legal ramifications and accountability. I don't want someone's dog hurt by anything I made and sold, so I do plan to test the soaps on myself. I plan to list ingredients (although I find some homemade soaps that aren't, which I don't like) so people know what they are getting and using on their dogs. I have a website already with my own logo and brand name I planned to use for my niche of toy dog items. I have experience setting up a website and promoting it, but plan to use Ebay and Etsy as well.

How hard was it to suddenly sell to the public? What concerns did you have and how were they addressed? At what point did it become a tax-paying business? or are you still a hobby soap maker selling soaps on the side?

 

[Guest]

It really depends on your state.
Here in california (sacramento) regardless if you are a hobby they want you to still get your licenses and permits etc.
You will have to contact your local SBA for more information

 

[Tabitha]

By law you must collect sales tax which means you would need a sales tax permit. They are free in most(if not all) states. If you collect & pay your sales tax, the govt will know you made income & you will be required to file business taxes. You biz taxes will 99% of the time show a biz loss which will *help* you on your personal income taxes. It sounds tricky but it's very simple, kinda like an EZ form. If you sell 1 bar of soap, this is what you *should* do. How many crafters do this? It's hard to say, my guess would be 2-10%.

 

[Mothi]

The whole point is, I don't know if they will sell or not.

I have had a resellers permit in the past and found it to be a pain. The amount of selling I was doing validated its use and I would not have done without it. This was a hobby that turned business. I got the permit when I wanted to buy things wholesale and do trade show (for lack of better term).

I rather not go through additional hassle of turning a hobby into a legit business venture when there is no consumer interest. At this time I have no intentions of doing trade shows or having a booth anywhere. I plan to just sell what I make one pound at a time.

If things do look good, I plan to get the proper paperwork and this time, set up a separate bank account for all business transactions (not using my main account) so I don't get screwed again from state tax people.

I guess what I am getting at is, if you set up a lemonade stand, you wouldn't go and pay taxes on the sales you make would you? Tell that to the kids charging a buck a cup. What about someone selling something they crafted? The problem is, when does selling what you make get to the point you should pay taxes?

 

[Tabitha]

I understood the question. I answered it above, but I don't think it's what you wanted to hear.

"...if you set up a lemonade stand, you wouldn't go and pay taxes on the sales you make would you?"

The answer is yes. If you do not, you are breaking the law.

"The problem is, when does selling what you make get to the point you should pay taxes?"
At the very second you accept 1 penny for an item, you have turned your hobby into a business by law & you owe taxes.

Now if you want to rephrase you question to "will I get caught if I sell a few soaps w/o permits", the answer is probably not.

Did I charge taxes & have a biz licence the first year I sold a handful of soaps, no.

 

[Soapmaker Man]

Tab, correct me if I'm wrong, but if you sell only on the internet, and you are located in only 1 state, you only have to collect taxes on sales made online to someone who buys from you and are also residing in your state. That is one advantage of selling online. Now personal income taxes are something entirely different. I'm only talking about sales tax here.

Paul.... :wink:

 

[Tabitha]

You are correct Paul. (To the best of my knowledge.)

 

[Guest]

According to IRS..

IRS Summertime Tax Tip 2007-13

Fishing, Gardening, Golf, Sewing, Woodworking, Horsemanship, Scrap Booking, Stamp and Coin Collecting, etc.

The IRS isn’t trying to spoil your fun but if your favorite activity makes a profit every year or so, there may be tax implications that surprise you.

What is a hobby? Hobbies, also called not-for-profit activities, are those activities that are not pursued for profit. What is a business? Generally, your activity is considered a business if it is carried on with the reasonable expectation of earning a profit.

If you are not sure whether you are running a business or simply enjoying a hobby, here are some of the factors you should consider:

Do you run the activity in a businesslike manner?
Does the time and effort you put into the activity indicate an intention to make a profit?
Do you depend on income from the activity?
If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
Have you changed methods of operation to improve profitability?
Do you or your advisors have the knowledge needed to carry on the activity as a successful business?
Have you made a profit in similar activities in the past?
Does the activity make a profit in some years?
Can you expect to make a profit in the future from the appreciation of assets used in the activity?
An activity is usually considered a business if it makes a profit during at least three of the last five tax years, including the current year.

An exception is breeding, showing, training or racing horses. Such activity is presumed to be a business if it makes a profit during at least two of the last seven years.

If you are conducting a trade or business you may deduct your ordinary and necessary expenses. An ordinary expense is an expense that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.

Losses from a not-for-profit activity (hobby) may not be used to offset other income. It is possible to claim some deductions for hobby activities as itemized deductions on your Form 1040 income tax return. However, there are special rules and limits to the deductions you can claim, and those deductions may not exceed the gross income from your hobby.

Still confused? More information is available at IRS.gov. A good resource is Publication 535, Business Expenses, found on the web site or by calling 800-TAX-FORM (800-829-3676

 

[Mothi]

Thanks for the response.

What I guess I was looking more for is the response smellitlikeitis gave with the technicals.

Yes Tabitha, I didn't like the answer. No problem admitting that.

Are there other things other than taxes a hobby maker should know... or business venture? haha Since if you are looking to profit, it isn't a hobby but a business venture. At least one can still like what they do.

I know later down the line insurance is something to consider. But I am mostly interested on what you ought to know when you are just starting out with seeing if selling something will work out or not.

 

[Bret]

I know later down the line insurance is something to consider. But I am mostly interested on what you ought to know when you are just starting out with seeing if selling something will work out or not.

I've been told that if you plan on selling anything ie soap, b&b, candles etc you need insurance. Because people are sue-happy, and the $hit factor could occur.

I've looked into insurance through the Soap Makers Guild, but they said that it won't cover actual materials from loss, to check the homeowners. My specific homeowners insurance isn't set up for home businesses, but I could get a rider or whatever it's called. I called my insurance company and they won't/can't give me a quote or tell me if they'll even do it until I can give them numbers of how much I sell, have, etc. I don't know any of that yet!

 

[Guest]

I know later down the line insurance is something to consider. But I am mostly interested on what you ought to know when you are just starting out with seeing if selling something will work out or not.

I've been told that if you plan on selling anything ie soap, b&b, candles etc you need insurance. Because people are sue-happy, and the $hit factor could occur.

I've looked into insurance through the Soap Makers Guild, but they said that it won't cover actual materials from loss, to check the homeowners. My specific homeowners insurance isn't set up for home businesses, but I could get a rider or whatever it's called. I called my insurance company and they won't/can't give me a quote or tell me if they'll even do it until I can give them numbers of how much I sell, have, etc. I don't know any of that yet!

You know its funny, but I am the one who found the insurance for The Soapmakers Guild. I called Marie, and told her about the company here in San Francisco I had found and said "if you have enough people we will cover you". So I was on the "other" forum sometime ago, and I gathered enough people to respond. Marie then called Donna Marie at HBN and told her about it. (if you dont believe me you can search the archives from last year at the other forum) I also had an article written on me at the Sapnofier Magazine about it. (which I should get a copy of)
Did I get a discount memebership? nope, some kind of recognition for a discount on the insurance? nope.. nothing.. they took all the credit.... lol

Lesson learned right? :wink:
There is a small company called Bombay insurance. they will cover your business with product liability as well for less than 500.00 a year (I think its 300.00) but as long as you MAKE UNDER 5,000 A YEAR Once you go over that amount, they do not cover you no longer with product liability. This is what all the soapmakers want. So you would have to find another company after that.

But its not required here in California to have insurance. But you cant do certain shows without insurance. But its always good to have.

HTH's

 

[Bret]

There is a small company called Bombay insurance. they will cover your business with product liability as well for less than 500.00 a year (I think its 300.00) but as long as you MAKE UNDER 5,000 A YEAR Once you go over that amount, they do not cover you no longer with product liability. This is what all the soapmakers want. So you would have to find another company after that.

But its not required here in California to have insurance. But you cant do certain shows without insurance. But its always good to have.

(I believe you!)

Do you have a link? I did a search on google for it, but it gave me a bunch of weird links. I need to get set up with the state as a business, etc. I definitely want to do some sort of insurance, but we haven't gotten a clear answer from our ins company if they'll allow it or not. So I don't know. I'm in Indiana, and the in.gov isn't too helpful on either business needs or insurance requirements. That or I just can't find it!

 

[Guest]

There is a small company called Bombay insurance. they will cover your business with product liability as well for less than 500.00 a year (I think its 300.00) but as long as you MAKE UNDER 5,000 A YEAR Once you go over that amount, they do not cover you no longer with product liability. This is what all the soapmakers want. So you would have to find another company after that.

But its not required here in California to have insurance. But you cant do certain shows without insurance. But its always good to have.

(I believe you!)

Do you have a link? I did a search on google for it, but it gave me a bunch of weird links. I need to get set up with the state as a business, etc. I definitely want to do some sort of insurance, but we haven't gotten a clear answer from our ins company if they'll allow it or not. So I don't know. I'm in Indiana, and the in.gov isn't too helpful on either business needs or insurance requirements. That or I just can't find it!

Here is the link.
http://www.bombainsurance.com/

Ken was very helpful to me. :wink:

 

[Bret]

Bomba, not Bombay! That explains the funky links :wink: Thanks!

 

[Guest]

Bomba, not Bombay! That explains the funky links :wink: Thanks!

I did put a "y" on there lol.. my bad.. lol
Sure no problem