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