Should I Get A Tax Id Number?

[Saltfisher]

I have benn making soft plastics for over a year now, and been giving a lot away. They are gettin popular and now have a bunch of people that want them. I give them away, and people usually offer trades or something. Everyone says they would pay $4 a pack which is what I would ask. I won't make a killing, few extra bucks a week. Would It be worth it to file for a tax I'd number and start paying taxes on it and start selling? I talked to a few people about this, ad they said I can claim anything used to make baits. Supplies, cups, oils, even my electric bill since I use microwaves. I would probably start with about a $50 sales a week with all the people I have interested. Just wanted to know if its worth it, or should I keep giving them away as I could loose money if I start selling?

Thanks

[Saltfisher]

Also if I decide to get a tax I'd number, and start paying taxes per pack which in pa the state tax is 6 percent, is that all I pay? Or are there any other fees? If that's it, then I should make out ok if I claim everything i use? Plus I sometimes deliver to people after work (I work full time) and could claim miles?

[carolinamike]

You must pay 10% of your sales for federal excise tax, which you must file quarterly. Contact your local IRS and they will get you started.

[cintaskevin]

If your sales are through your friends, stick to cash and forget about the taxes.  If you're making $50 a week selling your stuff, it's more of a hobby and not a business.  

[Painter1]

Congratulations on creating baits that are increasingly popular.  It sounds like you will be a busy guy. 

 

I am in a similar position but have been a business owner and investor most of my life and need to make quarterly tax payments anyway.  I never expect to make a profit because all proceeds are donated but the tax records still need to be kept.

 

Don't let the taxes scare you.  Tax payments are deductible like other business expenses and it is not difficult.  It is not like every quarter you have to do all the paperwork that you do for April 15th.

 

I would never advise you to evade taxes, even though it seems to be a popular temptation.  Of course that is a moral and legal decision you need to make for yourself and I won't get on my soap-box.

 

However you proceed, there is no reason to make your small business more complicated than it needs to be.  You already have a Tax ID number; it's your Social Security number.  There is rarely a reason to create a business entity that requires a new federal ID assuming you will not have any employees or outside partners/investors

 

Some equipment investments will need to be capitalized, meaning they will be subject to depreciation rules.  That is not as complicated as it may seem.  You just may not be able to deduct every expense in the first year you buy it but you will get the deduction over time.

 

My guess is that you will not show a cash profit after deductions.  Of course, keep good records of all incoming and outgoing money.  A simple spreadsheet works, but if you use a program like Quicken it is easy at tax time. 

 

I reccomend speaking to your usual tax preparer and let them know you will have a small home based business. 

 

Mike

[JSC]

What he said  X-10

 

You sell your products in state on the retail level, you will need to collect & pay the state/county/city Sales Tax.

 

The Fed Excise tax (10%) should be included in the price of the product (Excise Tax).

 

Need to stay out of trouble with both and do the legal thing.  ... Any thing I sell retail goes through a local dealer for local/state taxes.

[smallmouthaholic]

If your sales are through your friends, stick to cash and forget about the taxes.  If you're making $50 a week selling your stuff, it's more of a hobby and not a business.  

Poor advise for sure-

                                 A disgrutaled customer and/or competitor is all it takes to be investigated by the I.R.S. The government wants their 10% excise tax (due on quarterly gross sales) from tackle manunufactureres. You are required to collect 6% state tax in P.A. and file those state taxes withheld bi-annually ( for a small business) A knock on your door from an I.R.S. agent can be one sobering -and expensive experience. Make no mistake about this statement- you will be investigated by the I.R.S. if someone turns you in and/or you end up on the I.R.S. radar screen- no matter how small and clever you may think your are. The government knows all the games and sneaky tricks the "under the table crowd "likes to play

 

                                   Play it straight and file your quarterly #720 return and contact the state for a sales tax I.D. account. Get your E.I.N. # from the I.R.S.You  can deduct all of your associated expenses for 3 years .Trading off w/your friends is one thing- getting them to pay for the product is another. You'll need internet exposure if you wish to be successful and that requites a website and a domain name protection.Tackle shops usually want 40 % off of retail prices and you still have to pay the 10% gross exise tax of those discounted sales. Stay away from the consignment trap that some tackle shops want to offer. Advertisement and credit card collection fees add up quickly.

 

                                    Good luck and success to you.

 

Edited for spelling

Edited June 15, 2013 by smallmouthaholic

[bluetickhound]

Poor advise for sure-

A disgrutaled customer and/or competitor is all it takes to be investigated by the I.R.S. The government wants their 10% excise tax (due on quarterly gross sales) from tackle manunufactureres. You are required to collect 6% state tax in P.A. and file those state taxes withheld bi-annually ( for a small business) A knock on your door from an I.R.S. agent can be one sobering -and expensive experience. Make no mistake about this statement- you will be investigated by the I.R.S. if someone turns you in and/or you end up on the I.R.S. radar screen- no matter how small and clever you may think your are. The government knows all the games and sneaky tricks the "under the table crowd "likes to play

Play it straight and file your quarterly #720 return and contact the state for a sales tax I.D. account. Get your E.I.N. # from the I.R.S.You can deduct all of your associated expenses for 3 years .Trading off w/your friends is one thing- getting them to pay for the product is another. You'll need internet exposure if you wish to be successful and that requites a website and a domain name protection.Tackle shops usually want 40 % off of retail prices and you still have to pay the 10% gross exise tax of those discounted sales. Stay away from the consignment trap that some tackle shops want to offer. Advertisement and credit card collection fees add up quickly.

Good luck and success to you.

Edited for spelling

This post needs to be stickied, put in the front page, PM'd to everyone on TU.... Whatever it takes. I'm not at the point yet where I have a marketable product but when I get there I plan to follow this advice to the letter. I am already incorporated from a previous business I owned a few years ago but I would probabky need to talk to my accountant/lawyer ( he's actually the same guy.... Very convenient!) about reclassifying and such but the actual incorporation is already in effect.

I wish you great success in your endeavor and hope to follow in the next year or so....

[Saltfisher]

Thanks guys for the advise!!! Next year I will talk to my tax lady and ask her about this. I'm ready to take it to the next step, but start small. I also work full time. Also say I don't sell worms for a few months... Is that something that has to be documented? I just don't want to start selling worms, and end up loosing money in the process with claiming everything, and paying the taxes, fees, etc.

[Kasilofchrisn]

I am at the point myself where I need to get this done.

It just isn't worth it to me to get caught. I have enough interest including a friend who owns a successfull charter business who likes my jigs and he recently had his old jig maker retire. The charter boats up here tend to loose quite a bit of tackle between novice anglers and sometimes rocky terrain.

I have guys on a local forum just about begging for me to sell my jigs to them.

I have some CNC molds I bought so I am not making the same old stuff the other guys make.

I am not looking to make enough to quit my day job. That and my day job pays well and gives me plenty of time to make jigs.

I agree Smallmouthaholic has a good post. Is it really worth it once your caught?

[Saltfisher]

Is it true that I can claim everything used to make baits? Plastic, colors, scents, bags, even my electric bill? If so...what type of return on that stuff would I get back? Like I said before though, I dont want to do this for the little money I would make to loose out or not make it worth it. But if claiming all supplies will make it worth it alone, it sounds like it may be a good idea.

One guy at work here makes flies. He said he makes out just as good claiming materials and claiming miles on his truck since he delivers to many places. He said the flies alone don't pay much, but he makes out better claiming everything used to make and deliver. Sort of hard to believe.

[AKFerzy7]

statists gonna state

[smallmouthaholic]

Is it true that I can claim everything used to make baits? Plastic, colors, scents, bags, even my electric bill? If so...what type of return on that stuff would I get back? Like I said before though, I dont want to do this for the little money I would make to loose out or not make it worth it. But if claiming all supplies will make it worth it alone, it sounds like it may be a good idea.

One guy at work here makes flies. He said he makes out just as good claiming materials and claiming miles on his truck since he delivers to many places. He said the flies alone don't pay much, but he makes out better claiming everything used to make and deliver. Sort of hard to believe.

There are no guarantees in the business world- that's what separates the men from the boys. Yes-you can deuct all related expenses. If you're going to deduct mileage then you better have a specific log book in detail. Measure your office and work space precisely and figure the percentage against the rest of your home. That 's the percentage you're permitted to deduct your heat,electric,A.C. and taxes as part of your business expenses.

[Bass4Me]

Here are a few options: 

 

You can be the manufacter and wholesale your product to stores ONLY!!! No retail to anyone except stores. Create a business name and everything else involved with it. Less profit in this per unit sold.

 

Be the retailer and sell what you make yourself to individuals. More profit per unit. The average mark up is 40% per unit.

 

Do both...

Create 2 seperate businesses, 2 seperate sets of books, ID numbers and taxes. Sell your wholesale product to your retail side. Then sell to your customers. It's all legal and this would allow you to expand to other states and sporting good stores / tackle shops while selling local to individuals or online. The wholesale side is where you can write off the free samples you give out. :-)

[RayburnGuy]

Haven't checked on the latest tax laws, but at one time you could either keep a log book of all your mileage, fuel costs, repairs, etc. or you could use the averages set up by the government. They allow a set amount or so much per mile. You would still need to keep a log of your mileage if you used their average rate. You also can't go out and buy a new vehicle and immediately write the whole purchase price off the first year. You are allowed to depreciate tools and equipment over a period of a few years. This is for tools and equipment used 100% for your business. Not sure how, or if you even can, claim a percentage for personal use and a percentage for business use on vehicles and such.

 

The best thing to do would be to write down any questions you have and talk to a reputable CPA. It's their job to keep up with current tax laws and if you don't take up too much of their time they might not charge you anything in the hope that you'll use them come tax time.

 

hope some of this helps,

 

Ben

[smallmouthaholic]

Here are a few options: 

 

You can be the manufacter and wholesale your product to stores ONLY!!! No retail to anyone except stores. Create a business name and everything else involved with it. Less profit in this per unit sold.

 

Be the retailer and sell what you make yourself to individuals. More profit per unit. The average mark up is 40% per unit.

 

Do both...

Create 2 seperate businesses, 2 seperate sets of books, ID numbers and taxes. Sell your wholesale product to your retail side. Then sell to your customers. It's all legal and this would allow you to expand to other states and sporting good stores / tackle shops while selling local to individuals or online. The wholesale side is where you can write off the free samples you give out. :-)

I can and do wholesle and retail under one business name and tax I.D. #. I really don't see your point but feel free to educate me.

 

Samples fall under supply and materials and your cost of manufacturing-both are deductable. You can't write off(deduct) money you never received-just your cost.

[smallmouthaholic]

Haven't checked on the latest tax laws, but at one time you could either keep a log book of all your mileage, fuel costs, repairs, etc. or you could use the averages set up by the government.

 

Ben

I was told by my accountant( who's been to many I.R.S. audits) that I must produce an accurate and detailed long book to deduct any related mileage for sales,testing and promotional related expenses.

 

Point blank- she will not even consider entering the mileage deduction on the tax return w/o the log book since the I.R.S. will throw out the deduction on an audit. If the I.R.S. dertermines you're playing games w/ errneous deductions, they can make your life miserable.

 

Edited for spelling

Edited June 18, 2013 by smallmouthaholic

[RayburnGuy]

I was told by my accountant( who's been to many I.R.S. audits) that I must produce an accurate and detailed long book to deduct any related mileage for sales,testing and promotional related expenses.

 

Point blank- she will not even consider entering the mileage deduction on the tax return w/o the log book since the I.R.S. will throw out the deduction on an audit. If the I.R.S. dertermines you're playing games w/ errneous deductions, they can make your life miserable.

 

Edited for spelling

 

You left out one part of the quote. " You would still need to keep a log of your mileage if you used their average rate." I wasn't saying he could forgo the log book entirely. Only that he did not have to keep each receipt for gas, oil, etc. if he decided to use the average mileage rate accepted by the IRS. Some people find it easier to do this than keeping up with every receipt. If it only costs you 30 cents a mile to operate a vehicle (I know it costs more than that to operate a vehicle these days......these numbers were grabbed out of the air as an example) and the IRS allows 35 cents a mile it's netter to go with the average they allow.

 

Ben

[smallmouthaholic]

I don't keep a log book so no deductions for that are made. That said, accurate measurements (sq.Footage)of the office and shop are maintained. The % of that against total home sq.footage expenses-including real estate taxes are deducted.

 

Btw- Money Magazine (1995) did a comparison cost of ownership,insurance,vehicle maintenance/repairs and replacement costs for SUV's.

 

The 1995 Ford explorer was .55 cents per mile-that's 18 years ago

[Driftwood]

Just sell to the local bait stores. If you bring extra customers to their store, they will be happy to carry your product. No need to try to retail your product. Also here in Ky. we found out that the raw material used to make our lures was a tax deduction but any finished product is concidered sellable and you have to pay an inventory tax.( Inventory required at the end of the year or end of your fiscal year.) Make sure to keep a very detailed milage log you will need it. Good Luck and stay on the good side of the IRS. You'll be glad you did.

[Bass4Me]

Another thing people do is to claim the losses as a hobby. BUT!!! If you make any profit in 3 years out of 5, then your troubles will begin. The IRS will consider your hobby as profitting and your will be hot water for sure.

 

 

 

Do a Google Search "IRS and Hobby Profits" Then select on closest to this -

Is Your Hobby a For-Profit Endeavor?

 

Direct from the IRS and It lays it all out for hobbiests that want to write off losses.

[Jdeee]

Send in your taxes anonymously, the IRS really likes that!!!!!

[carolinamike]

If you're selling baits you can deduct items such as fishing rods, reels, hooks, weights, heck even my new kayak is a tax deduction. The IRS does allow for research and development and product testing, even if you are just selling baits part time to test your product properly you need fishing equipment, all of these are acceptable deductions, but keep in mind if you arn't paying the manufactorer's excise tax then you can't count these as deductions.  

Edited June 29, 2013 by carolinamike