Oh crap. So your workshop just made money. And we’re not talking under the table crumpled up dollar bills from your Aunt Mabel either. You had people (maybe even strangers) legitimately buy something you made (shocking I know!). So now what? Are you just going to stuff that money in your mattress or is Uncle Sam going to get his cut too? Believe me when I say talking about taxes and the IRS is a scary thing to me. I’ve never owned my own company before (holy crap, I own a company! That employs one person…) And let’s be honest, finding out how a DIY blogger/Woodworker reports income is no easy task.
Do you sell goods to people? Sure!
Did you collect State Sales tax on them? Um…yeah…
Did you use PayPal? Of course!
Were all the transactions business related? That Disney Princess dress was totally for the shop and not my daughter…
Did you report your earnings quarterly? Wait what?
Like I said, oh crap. Luckily there’s just a small fee for that last one if you didn’t know to do it.
I started this blog less than a year ago. March 16th is the launch anniversary (I remember THIS anniversary only because it’s the day before my birthday… sorry wife…). The amount of things I should have been collecting and cataloging since the beginning is insane. I just thought this was a hobby that if I was lucky my family would read. I didn’t expect a wait list of builds, a bunch of followers and a handful of sponsors. It makes my head spin to think about it. Well now it’s time to take a little responsibility for this Official business and know how to run it right. But how?
For starters, I’ve got a cheat sheet for you (with a lot of links below…). In the spirit of Laziness, you can just listen to it instead of reading. Drew From Rocking H Woodshop and Jeremy Crawford from Countryside Workshop Host The Woodshop 101 Podcast. A few weeks ago they had on Brian McCauley of McCauley Designs and The Dusty Life Podcast to talk about taxes. Why do you care that a woodworker is talking taxes? Brian is a former agent for the IRS and came on to share some of his secrets for tax prep in the world of builders and makers. Check out the full YouTube video below or find the Episode on iTunes Podcasts or other podcasting sources.
If you didn’t listen and you’re just skipping ahead to see what funny thing I say next, I strongly recommend you go back and give it a listen. You wouldn’t think over an hour of tax talk would be interesting, but knowing I’m about to file for the first time with this business, I consumed the entire thing (while on the beach in St. Thomas…). Tough life. I know.
I am definitely not an expert on this topic, that’s why I wanted to share the podcast because I found it so useful, but I do have a few tips I’ve picked up that might make your life easier that weren’t covered.
If you shop at Home Depot, choose the “email a copy of your receipt” function at checkout. I literally searched my inbox for Home Depot Receipt 2016 and every single purchase came up. Date, items purchased, transaction number, sales tax paid, etc. I knew exactly how much each project cost in materials even months after the build. Of course there are one offs, but I purchase a lot of stuff online too and they all have digital receipts to boot. It will make your life easier.
Establish a LLC, with a Tax ID Number – Not only will it help if someone tries to sue the pants off you when their table collapses or their new wall art crushes a small dog. Having a Tax ID also allows you to not pay sales tax at your Home Stores if you’re purchasing material with the intent of reselling your final product (in most states).
If you use tools to make your stuff you need to catalog and submit them for personal property tax. Yes, this one sucks. It’s also an easy one to overlook, but if you’re ever audited you’ll get nailed here. And the fun part, you need to know what year you purchased or received the tools and what their original value was. Then each year they’ll depreciate and you’ll owe on a smaller percentage of the value. This is something that happens on a State level so rules and amounts might be different from State to State but for me it only came out to being $2-$3 owed per $100 value for that year.
Learn what you can write off as a business expense when you’re on the fence for business decisions. When I was deciding to go to Haven Conference last year, the cost was a major factor. The ticket alone is a few hundred dollars and that didn’t include travel or the hotel room. However, this conference was 100% a business trip for networking and continuing education. So the entire thing could be written off at the end of the year. Even the airfare, meals or a percentage of the mileage driven is claimable. Keep your receipts! It’s worth it. If you have any other tax questions please ask a trained professional. Taxes aren’t like woodworking where you can fake it until something goes wrong…. Oh wait. Ha!
~ Lazy Guy