[Jewelry making - Article 01337] - Re: [Orchid] Whether or not to get a tax id

[Karen Christians]

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Sue,

    You have asked a very good question, and it's one I get here a lot
    at Metalwerx. The budding artist who is making more and more jewelry,
    selling at more shows, etc. Yes, it is a headache, but it doesn't
    have to be. 

    Here is my advice for what's it worth. 

    Ask yourself, what do you want and where do you want be? 

    I started making jewelry and selling it at local craft shows around
    Boston. I didn't make very much money, but I knew that it was
    something I wanted to do. So the answer to the first question was
    easy. I wanted to work with metal and knew that for a career, that
    was the way to go. The answer to the second question was that I
    wanted to be involved in metals, either educating or making it for
    the rest of my life. 

    I started as a sole proprieter, getting a tax id and filling out the
    quarterly form. There were a lot of zeros in the beginning for
    income, then a few hundred dollars and then one quarter I made a
    thousand! What I didn't know and what became a perk, is since I had a
    tax id number, when I made the transition of leaving my job and
    entering art school, that four years of art school was tax
    deductable. There were perks here. Since I was making a complete
    career change, the decision of getting a tax ID for me, was the right
    one. 

    If you are married, having a second business with a tax id is fine.
    You don't even have to make money at it each year. You can lose money
    every year. The IRS wants to know you are trying and there is
    criteria that they want to see proving which separates the hobbyist
    from a business. 

    Some of those criteria are: 

    1) Are you spending money on advertising? If you are willing to
    cough up the bucks for print ad, then you are NOT a hobbyist. It's
    expensive stuff. 

    2) Are your expenses exceeding your income in a manner which is
    suspect? Spending money on capital equipment, supplies, etc., is
    fine. Claiming $30K on entertainment expenses is not. 

    3) Rejection letters from shows. Believe it or not, rejection
    letters are your friend. True, it is sad not being juried into a
    show, but the rejection letter is proof to the IRS that you are
    trying. 

    4) Are you building a business or a hobby? Trying to write off your
    vacations to Hawaii and saying you were on business the whole time
    is another flag for the IRS. Attending trade shows like Tucson, SNAG,
    Clasp, MJSA, etc., is not. These are completely legitimate as is all
    your expenses incurred attending it. 

    There are many more deductions of course, but when you feel
    comfortable ponying up the bucks to pay for a CPA, rather than Turbo
    Tax, you are ready for the tax ID. You can get the tax ID, stay with
    it for a few years and test the waters and decide if this is the
    right thing for you. 

    There are the hassles of filling out the Tax stuff even for your
    CPA. You need to take inventory each year of your finished goods,
    unfinished goods, scrap and in process work. For work that is
    finished sitting in your inventory, you have to pay the tax on the
    retail price (if you are selling it yourself). Unfinished goods are
    your findings, wire, stones, etc. That scrap metal that is hanging
    around? Well you didn't pay tax on it when you purchased it, and
    unless you have it refined, it still has value. Tools? Usually this
    are deppreaciated which is great tax wise, until you have to replace
    them. Work in process? Well, there is a price to those too. I usually
    take the retail and figure the percentage. Are they 50 percent
    complete, 75 percent, 25 percent, etc. 

    There are perks and there are downsides. Getting a Tax ID isn't
    just, "wow, I can take advantage of all those vendors out there",
    it's a business jungle out there and you have a responsibility to
    tend to your business garden. 

    Learning the nuances of business is continous process of learning,
    going back, doing it again, learning the right way. Now I am
    directing a business with lots of overhead, cost per hour, percentage
    of overhead per square foot, etc. It's intimidating. However, you
    learn along the way and there are great people out there to help.
    Just keep asking questions to get you to the next step. You'll know
    when you are ready. 

    Me? I just keep asking myself these questions every day. 

    Is it still what I want? 

    Am I still having fun? 

    Am I where I want to be. 

    When you answer yes to all of them, you are doing the right thing
    for yourself. You can learn about taxes. Passion? Either you have it
    or you don't. If you have the passion, the rest is easy. 

Hope this helps.

-k

M E T A L W E R X
School for Jewelry and the Metalarts
50 Guinan St.
Waltham, MA 02451
781 891 3854
www.metalwerx.com

 
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