Whether or not to get a tax id

Jewelry Discussion
1

Hello All,

Had a quick question about what everyone’s thoughts were on whether
or not to get a tax i.d. number. I’m still very new at this and I
wonder if it’s worth it at this point with the extra headache of
filing more tax forms, etc. I don’t make over the allowed amount
per year yet to have to claim anything but I know I will be. I’ve
only been doing this for six months or so. I realize you have
access to more suppliers, wholesalers, etc, when you’re registered
as a business, but is it something I should be thinking about doing
now? do customers expect it? Is it better to add the tax at a sale
or just include it? Is there something more I should know about all
this. Any help would be very much appreciated. As always,

thanks to everyone in advance for their input.

Sue in Ohio.
www.sterlingimagedesigns.com

2

Hello Susan,

You have just declared to several thousand jewelers, in a forum that
is a permanent archive, that you are in business. You had better
file right away. I am sure that there are some on this forum who
could advise you on how to avoid or delay dancing with the taxman,
but it would be foolish to discuss this in such a public venue. At
this point I don’t think you have any choice.

On the bright side, once you are in business there are thing that
are deductable that can be to your advantage. You should learn how
to make the best of the situation without cheating as soon as
possible.

3

I’m mostly wholesale. I have a webpage, but have only sold to people
out of state and the Interstate Commerce Clause says I don’t have to
charge sales tax to folks in other states, so I don’t need a tax ID
number. There are very very few suppliers who won’t sell to me
without one, but if I give 'em my Socialist InSecurity number they’ll
generally bend. Pre-paying with a credit card also changes minds
rather quickly.

Ray

4

Sue,

If you are buying materials, making stuff and selling it then you
are in business.

There is a couple different tax id’s that you can have.

You already have one - your social security number. As a
sole-proprietor you can use your SSN as the ‘business’ tax id. Or you
can go to the IRS web site and apply for an EIN. The EIN will be
another tax id number that is linked to you so you don’t have to give
out your SSN.

I suppect that if you are selling product you are required to
register to collect (and pay to state) sales tax on all sales. This
will be your other tax id. If you are going to get a EIN to use for
the business, do so before registering with the state. Many states
will use your federal tax id as the state sales tax id.

Check with your state tax agency. Selling product without
colllecting sales tax or collecting sales when are not register to do
so can get you in legal trouble with the state. If in doubt with any
tax or financial stuff check with a local accountant first to make
sure you won’t get in trouble down the line.

Norman
Howling Studios

5

Hello Susan,

what everyone's thoughts were on whether or not to get a tax i.d.
number. I'm still very new at this and I wonder if it's worth it
at this point with the extra headache of filing more tax forms,
etc. I don't make over the allowed amount per year yet to have to
claim anything but I know I will be

OK, where did I put my soap box. Oh yes, here it is.

If you are selling retail, every state that has sales tax will
insist that you register and collect sales tax to be passed on to the
govt. So, YES, it’s worth it to be legal. My experience is limited to
my state’s requirements, so you need to check with Ohio’s department
of revenue for what you need. When you go out of state, you will need
to register with that state as well. They want their money and
usually try to make registration simple.

That said, the other reason you really do want to register and file
taxes is that in the future you may want a record of your sales.
Should you need a loan to purchase new equipment or start a business,
your tax records will help verify that you have business income, are
serious, and are HONEST.

'Nuff said. Off the soap box. Apologies to anyone I might have
offended.

Judy in Kansas, who also consulted a CPA to learn how to set up the
proper records and make filing taxes much easier! Money well spent.

6

Hi Susan,

I’ve been a struggling business for quite some time now-but I have
to say in spite of dealing with filing my taxes (by state
requirement) on a monthly basis, I have found it handy to have the
tax id number.

Yes, you have access to wholesale purchases, which everyone knows
about. But something to consider is the time when you have an
opportunity to be part of a trade show, or if someone wants to
approach you regarding wholesale purchasing of your products. In
these cases, a tax id might and probably will be required.

My point is it is better to be prepared professionally for those
business opportunities that present themselves. That’s when having
the legal paperwork done benefits you most, and you will be happy
that you did it.

Good luck with your decision!
Miachelle

7

Sue, I hear you. You start making jewelry because you love making
jewelry, and then find all this business stuff needs to be done. I’d
say get the tax ID. Work with the appropriate department(s) in your
state to find out what they expect you to do, when to file, etc.
Treat yourself like a professional. It’s the surest way to make sure
others treat you like a professional, too.

Re sales tax, I think you can go either way. Do whatever makes you
most comfortable. If you don’t like reverse calculating the tax you
owe based on your retail sales, charge sales tax at the time of sale.
That gives you a clear amount of tax shown on each receipt.

Good luck!
Barbara

8 
Had a quick question about what everyone's thoughts were on
whether or not to get a tax i.d. number

Run to your nearest state office, and fill out the forms. Looking at
your website (nice), you are plenty serious enough. Reasons for: You
are paying taxes on your materials now. The more you buy, the more
you pay, over time. If you sell a $1500/cost strand of pearls, around
here you will pay $120 in tax on that. Having a tax # will make that
zero. Next, you cannot go almost all of the places I go. Most dealers
of all kinds require a tax number just to get in the door - the Tucson
Gem show for one…We have Otto Frei just down the hall - it is
prominently posted, “No Findings Sales Without Tax Id Number.” Cons?
Can’t think of one… As far as the forms, they’re not a big deal,
and it’s part of doing business. Would you rather spend and half an
hour doing the form (not counting bookkeeping, maybe), or spend
$3,000 in sales tax on materials? The official way to do it is to
have a tax account and deposit taxes you take in into it, and then pay
that to the state. Many people just write a check, though. I know
Quickbooks has a mechanism for doing just that - itemizing and
accounting for sales tax. Anyway, enough - go get a tax ID…

9

It might depend on the state you live in, but in TX the ID number is
free and you just have to fill out a form. If you go during the dead
times it takes about 10-15 minutes and they can answer any tax
questions you have. You might be able to get the form online and
that will save you a few minutes in the office. But, you can’t sell
anything officially for yourself unless you have the number
displayed at your business. It’s a minor inconvenience, but at least
you’ll have it when you need it, and you may only have to file every
quarter. If you google your state and tax id, you’ll get a good bit
of info from your state. :slight_smile: good luck

10

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

11

Hi sue, By all means get a tax id. Treat the selling of your jewelry
as a business. Treat the designing and making of it as an art. The
better the business, the more art you get to do. In a business,
everything you spend is a tax deduction. Everything from the
materials used to the scotch tape you always seem to need and can
never find. I went on your web site and you have great stuff. keep
it up and welcome to our little group.

Have fun. Tom Arnold

12

From a tax point of view, she doesn’t need a tax ID for the business
so long as she reports her income on her own tax return. On her own
tax return, being in business or not makes a difference to some
things, like deductions for expenses and capital gain vs. ordinary
income.

13

Ray,

You’re giving out your ss#???

You are waiting for someone to steal your identity. As a victim of
identity theft, guard that number like it’s the Hope Diamond!!!

It doesn’t cost anything to get a resale #, I don’t sell to the
public so I don’t collect tax. So at the end of the year all I have
to do is write down a few figures and I don’t pay them a cent. I
know that this puts me on the map, but I am a real business so it
doesn’t matter. If you’re trying to fly under the radar (good luck),
then you probably don’t want this.

But please, no matter how much you trust your dealers, you don’t
know who has access to the files back at the showroom. Once your
identity is stolen there are certain credit checks that will always
be on place on your name, it’s a serious PIA. My lawyer said to not
give anyone my ss#, the doctor’s office asks for it all the time and
I don’t give it up.

IMHO,
Amery

14 
For work that is finished sitting in your inventory, you have to
pay the tax on the retail price

Karen, I haven’t heard of this and I’ve been signing my accountant’s
preparations for twenty years. (I don’t claim to fully understand
the documents though :stuck_out_tongue: ) I pay local property tax but it does not
include inventory. I wonder if if this is something particular to the
state of Taxachusetts?

15

Karen, thank you for such useful I appreciate how you
explain in simple terms how to determine if a tax id is for you. As
a budding business, any info like this is helpful.

Rose

16

I have a friend who owned a gallery in Ohio, some months it was “do
I pay my mortgage,or do I pay sales tax?” Saw her last week, she
closed her gallery two years ago… she is still paying IRS and the
state of Ohio Sales TAX. Me, on the other hand - I’ve always paid
sales tax… yet this year, I was fined nearly $1000. because the
state claimed that I missed filing in Dec of 03 (yeppers, that’s
three years ago!) I had to file for a review - don’t know what the
results will be - but I provided proof that I had NO sales for that
time period at all! – I did shows and own a gallery - I didn’t do
any shows that year, for that month, my gallery paid its sales tax -
two different tax numbers. They drive me crazy!

17 
You are waiting for someone to steal your identity. As a victim of
identity theft, guard that number like it's the Hope Diamond!

Yes, I understand but I’ve taken steps to prevent that.

It doesn't cost anything to get a resale #, I don't sell to the
public so I don't collect tax. So at the end of the year all I
have to do is write down a few figures and I don't pay them a cent.
I know that this puts me on the map, but I am a real business so it
doesn't matter. If you're trying to fly under the radar (good
luck), then you probably don't want this.

I am a real business too.

But I am not a person required to collect tax for the state. And as
another poster said, in exchange for the “privilege” of acting as an
unpaid agent of the state you take the risk of being fined for
perceived errors, and they have unlimited funding and time to battle
it out in court. I do not. My time is very valuable and I won’t
fritter it away as an unpaid lacky for an entity that mishandles
money as poorly as does the state; I have to live within my means and
so too should they, and I expect and demand money in echange for my
labor/time.

I don’t know about everyone else’s states but here in Tennessee the
government can simply go into your bank account and take whatever
money they decide you owe, and good luck getting it back if they are
in error! But anyway, I don’t sell to the public in this state, so am
not required to charge sales tax.

There are no suppliers worth dealing with that require a sales tax
ID number; in this semi-free marketplace, there are plenty of
suppliers to take up the slack of one or two lazy/stupid suppliers
who don’t understand the laws of the land and who assume whatever the
state tells them is fact.

But please, no matter how much you trust your dealers, you don't
know who has access to the files back at the showroom. Once your
identity is stolen there are certain credit checks that will
always be on place on your name, it's a serious PIA. My lawyer said
to not give anyone my ss#, the doctor's office asks for it all the
time and I don't give it up.

I hate to differ with conventional wisdom, but it takes just a bit
more than just an SS# to steal someone identity.

Ray

18

Neil,

I wonder if if this is something particular to the state of
Taxachusetts?

I have to tell you I take umbrage with this comment. In fact,
Massachusetts, when looking at taxes as a percentage of income, is
way down at the bottom of the list of taxes paid (I can’t remember
the exact number but we were more than 30th). Even if you look at it
in other ways we have nowhere near the high taxes that, for some
inexplicable reason, people seem to assume we do. I can’t remember
off hand what state you’re in, but I’d be happy to have an off list
comparison of each of our tax liabilities. I bet you would be
amazingly surprised at how much less we pay than most people. And on
top of that it’s a great blue state to live in with great services
that come from our tax money. Unfortunately I missed Karen’s
original posting on this particular tax question so I’m not sure what
she’s referring to, but it could be some of the local property taxes
that are individual to different communities. However, I don’t
believe you pay on the retail value, but the cost, as with most
issues around inventory.

Daniel R. Spirer, G.G.
Daniel R. Spirer Jewelers, LLC
1780 Massachusetts Ave.
Cambridge, MA 02140

19 
From a tax point of view, she doesn't need a tax ID for the
business so long as she reports her income on her own tax return.
On her own tax return, being in business or not makes a difference
to some things, like deductions for expenses and capital gain vs.
ordinary income.

As regards income tax, that is true. But she needs a TIN to collect
and pay state sales tax, and if she is selling on more than an
incidental basis, she is required to collect and pay state sales tax.

Lee

20

Massachusetts certainly has odd laws. Metalwerx now has to pay $1100
a year for workman’s compensation for every teacher and contract
worker that teaches or helps out in our school. That is for one day
or five days, doesn’t matter. It’s the only state that requires all
contract workers to have it. I spoke to the director of Dept. of
Industrial Accidents who told me that the state definition of
“employee” is that if a gerbil spent a minute running across your
floors, it would need WC. Great. I’m so relieved that the mouse that
moved into my back cupboard can claim workman’s comp if I catch him
in a trap and rush him to the ER!

Anyway, all businesses deal with inventory, that’s why you see
Inventory Sales, to reduce their tax liability for the inventory
they have. The tax has to be paid someplace. Your accountant might
just not think that a jewelry business needs to deal with inventory.
A store yes, but an individual, no. it’s just another way to show the
IRS, YES, I am a business!

Here’s another little tidbit, but this is a state by state issue. If
you have a nice business selling jewelry and only a simple will, your
heirs will be paying up the nose in probate.

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