Oh, I know. I just get tired of being taxed for everything.
When does it become selling?
- Thread starter MickeyRat
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I agree...my state has been nickel and diming us to death these last several years and it is getting worse because of the pandemic.
Speaking from a former background in insurance (I left the industry in 2010 so this IS 11 years old; I also held my license in Texas so not necessarily applicable everywhere) with a specialty in small business policies... I would recommend you check with your insurance provider, and get their answer in writing. I agree that giving soap to friends or associates, like the ladies at the dentist's office, is likely to be covered under personal liability. But if you make soap for a business owner, fully aware that they will be using the product to support their business, your personal liability may choose to exclude coverage for this. Even without an exchange of good/services/currency, your insurance policy can declare that a manufacture of goods that isn't covered under personal liability. And whether it will be covered or not will vary from insurance provider to insurance provider and the specifics of the type of policy you have.
While bartering sounds like a good option, my concerns would be insurance and labeling. Both because you never know what a guest might be allergic to, and in the end you'll be the one liable for your soap, even if the soap is provided by the Airbnb host. Just my thoughts.
ETA: I didn't answer the ultimate question. Selling, by definition, entails the exchange of currency for a product. So, if you barter you aren't selling. However...see my original blah, blah, blah.
Actually, taking **any* "consideration" is considered selling by the IRS and Tax Commision, whether it be in cash or goods. OP needs to check with her State Tax Commission about sales tax also. Another way to approach it is for the BnB owner to provide ALL the ingredients (thus paying the sales tax) and the OP to charge for her time as an independent contractor. Then that is declared on her regular taxes as income.
@ImpKit and @MaryinOK my cold attorney heart was warmed by each of your cogent, reality-based responses - thank you!! The only tweak I would make to Mary's response is that one generally cannot charge hourly as an independent contractor; normally one must charge a flat fee for the work (or for each segment of work), no matter how long the work, or segment of work, may take to complete. That risk factor - potential profit or loss due to the flat fee - goes to the very heart of the definition of an IC.
Okay, completely off topic but... why can't an independent contractor charge hourly rates? If that's the contract they negotiate and such, with the rates spelled out, I would assume it would be allowed.
If you don't want to further hijack the thread to answer, and you're willing to!, then I would be entirely open to a PM with the answer. It really is just to sate my curiosity.
It is part of the IRS definition that a true independent contractor has to bear risk of loss or gain. Charging by the hour eliminates or greatly reduces that risk. In contrast, charging by the project, or segment of project, means that the maker bears the risk of loss or gain - because the project might end up taking much longer, or taking far less time than anticipated. Also, who bears the risk that the project materials might break, or in the case of soap, need to be replaced due to a failed/spilled/stolen batch? If it is not the person making the item, then that person probably isn't an independent contractor.
Sometimes it is easier to understand from the perspective of the employer-employee relationship. The employee gets paid no matter how long it takes, whereas the employer may lose money (i.e., not get "paid") if the project runs over budget. Thus, the employee has no risk, and the employer has all the risk (but also stands to gain the reward if the project goes well).
Bottom line, if the person doing the work isn't bearing the financial risk, then the worker is almost certainly going to be classified as an employee, not an independent contractor. There are other factors that play into this, but that's a really big one that will make or break the categorization. And that categorization matters a lot, since it affects who is responsible for withholding and depositing payroll taxes, whether the payee is responsible for paying all or only half of the Social Security withholding, whether the payor must provide worker's compensation insurance, and the like. It's a sticky wicket, for sure.
HTH.
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I was in a similar situation, and I am one of those "If I do it, it must be legal six ways from Sunday" kinds of people. I got around all the folderol by having the business owner purchase all the supplies (oils, NaOH, heat shrink bags, EDTA, micas, fragrance, etc), while I provided all of the equipment and my time. She provided the labels (to my specification) and we had a contract that stated she would assume all liability. In exchange, I got free services for a specific portion of time (massages to give as gifts). It was legal according to her attorney and mine. And now I have experience doing this and a boiler plate form for the next time.
And thank you for the idea of approaching the AirBnB people locally! If I can ever get this ankle/foot healed, I may follow up on this.
And thank you for the idea of approaching the AirBnB people locally! If I can ever get this ankle/foot healed, I may follow up on this.
Zany_in_CO
Saponifier
This is similar to the agreement I had with my wholesale customers.
What if there was a written contract between the two parties where one party assumes liability?
Would that be a way around the issue of liability? Not sure what laws are but theoretically wouldn't this be ok?
I ask because (for example) we have to sign liability waivers to participate in certain things.
The assumption of liability and the responsibility thereof by the AirBnB operator for any injuries received by or inflicted on their clientele is... tricky to me. Because that's a contract between you and the operator, not between you and the injured parry (guest). So if the guest retains a good lawyer and never sues the operator but only goes after you... will the court review your contract and dismiss a case against you telling them to go for the operator?
My gut says no. My gut says what happens is you get sued, you get a judgment against you, one your insurance still won't cover so it's entirely out of pocket. And then you have thy laborious process of filing against the operator with whom you contracted. And THEIR insurance may not be rated to cover this. So you could get screwed since it's now out of pocket for them too.
I'm not a lawyer. I could be way off base. But this is the concern I have with this assumption of liability contract. Because it's really only between two parties and supplying to a hotel service involves a third, non contract, party.
@AliOop can you comment perhaps?
My gut says no. My gut says what happens is you get sued, you get a judgment against you, one your insurance still won't cover so it's entirely out of pocket. And then you have thy laborious process of filing against the operator with whom you contracted. And THEIR insurance may not be rated to cover this. So you could get screwed since it's now out of pocket for them too.
I'm not a lawyer. I could be way off base. But this is the concern I have with this assumption of liability contract. Because it's really only between two parties and supplying to a hotel service involves a third, non contract, party.
@AliOop can you comment perhaps?
When I worked for a Nursing Registry, we were categorized as IC's. The pay was hourly. Granted that was decades ago. but the IRS guidance in 2018 still allows that, with some reservations.
Not meaning to through a monkey wrench into the works, but it seems there are some variables.
Yes, some specific unions have gone to bat for their folks, and carved out exceptions for some per diem and hourly workers, including nurses, doctors, and a few other professionals. But for the type of work being asked about in the original post, no such exceptions exist.
Third-party liability issues are complex, but in the US, and more so in some states than others, the manufacturer always has liability for a "defective" or injurious product, even though the manufacturer never had any direct contractual relationship with the end user. The public policy behind this rule of law was to incentivize safety; otherwise, if the manufacturer were shielded, less ethical folks would never bother with product safety. Why should they if they could never be held liable by the person who was injured?
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OK, so I am never going to end up making soap as a sideline. I am OK with that, I guess. I know I make safe soap, because I test that soap first before it ever goes into the shrink wrap. But we have such a litigious society...
Thank you for letting us know, though! It makes all the difference in the world to hear from someone who is willing to be honest with you!
I really don't want to discourage you from selling! Good insurance normally takes care of both the court judgment and the legal fees, so I always recommend having that, even before getting an LLC or corp.
An LLC or corp may protect you from being personally liable for a court judgment, but if you don't have insurance, you must pay all the legal fees out of pocket - including the fees to get yourself personally dismissed from the court case when they sue you as an individual, rather than suing your LLC (happens all the time, believe me). Also, if one does not keep proper separation of accounts so that personal finances aren't commingled with LLC/corp finances, a good lawyer can get around an LLC or corp in about a minute. Many small business owners overlook this and find themselves opened up to personal liability as a result, despite having an LLC.
That's why good liability insurance is so, so important, unless your finances are such that you are able and willing to file bankruptcy if someone sues you. There are some people for whom that would make more sense, honestly, because they have no assets and no money for insurance.
Bottom line, every person who wants to sell products should pay for an individualized appointment with a CPA or attorney who specializes in advising small businesses. That person can help you figure out whether you need just insurance, or insurance + an LLC, and if the latter, how to manage the books so that the LLC actually provides legal protection for you.
Absolutely agree!
I would add that from an insurance perspective there can be, and often is, a difference between manufacturing and selling. So be sure that what you are doing isn't going to be excluded from the terms of the policy you are covered under.
As hobbyists our personal liability policies (see your homeowner's or renter's policies for this coverage in most cases) won't cover manufacturing typically. So even if you don't sell it, if it's just gifted, if it's at a level your policy may consider manufacture... you could be in trouble. Which is why I express concern for making a bulk product, to order, for a business entity like the AirBnB operator. Because regardless of whether you receive goods, services, or currency... or none of that!... in compensation, you've manufactured a product.
