[Jewelry making - Article 00049] - Re: [Orchid] Independent jeweler in today's marketplace

[David L. Huffman]

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Hi Nan;

    Once upon a time, when I worked as an employee, I used to do a bit
    of commission work on the side. I declared it on my taxes as earned
    income. Later, when I was doing more of this, I filed as a sole
    proprietor. Ten years ago I incorporated, so now I file as a Sub
    Chapter-S corporation. Here's what I know about it. Mind you, there
    may be others here who will have better knowlege about these things
    and I welcome their corrections (as long as they actually know what
    they are talking about). 

    Sales tax is a state issue, and you file sales and usage tax
    accordingly. If you collect above a certain amount, the state will
    expect you to estimate your sales tax and pay it on a quarterly
    basis. Sales to out-of-state customers, you don't collect. It's the
    responsibility of the buyer to declare the purchase and pay sales tax
    in their own state (which virtually nobody does). But here in NY, you
    have to inform them of your total annual sales, and pay sales tax on
    the amount that is taxable. In some states, materials are taxed and
    labor isn't, in NY, it's all taxed. Wholesale income is not taxed,
    that's the responsibility of the retailer. I don't think the state
    cares where or how you sell, as long as you collect and pay them the
    taxes. This goes for selling a car, garage sales, lemonade stand
    income, whatever. Therefore, having a sales tax ID shouldn't be
    affected by how you file federal taxes, as long as you collect the
    taxes and pay them. 

    I think you should talk to an accountant about this, but my guess is
    that your best bet would be, if you want simplicity, to file the
    income as earned income under sole proprietor status, which doesn't
    require any other filing except a DBA (doing business as:) which is
    done at city hall. That is required if you sell using something other
    than your own name, such as "Bo-Diddly's Bead Emporium", etc. Use
    your own name for your business, you don't need the DBA. 

    That said, I think there are advantages to being a Sub-S
    corporation. As a sole proprietor, you will have to pay a "single
    business tax", in some states, which is a state tax, and a percentage
    of your income from the business. Sub-S doesn't pay that or pay the
    corporate tax. But, with a Sub-S, an increase in assets, such as
    equipment, inventory, etc., will pass through to your personal income
    filing as a capital gain. Filing for a Sub-S, with a typical
    accountant, will run you around $700-$800 year if they are handling
    all the other tax filings like state sales, FICA, FUTA, etc. Again,
    simplest way is as earned income. But beyond a certain amount, you
    might flag the IRS if you don't file as a sole proprietor. Ask an
    accountant. 

David L. Huffman

 
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