No matter where you look, there are creative people making things – sweaters, soaps, drink coasters, cupcakes, wood products, and more. When crafters and artists have created all that they need for their personal use, they often start giving their goods away to friends, family, and neighbors. When they’ve saturated that market, the more ambitious crafters start to think seriously about selling their handmade and handcrafted goods for profit. As long as you sell just a few items by word of mouth, you can usually avoid operating as a business. But if your operation starts to grow in size and scope, including plans to advertise, sell online or in shops or at craft fairs, then it's probably time to treat it like a business.
Here are some of the steps you need to take to turn your craft or hobby into a business.
First, you need to select a business entity. For many small artisans and crafters, a sole proprietorship makes sense as it is the most simple. After deciding on your business entity, you will need to choose a name for your business, called a DBA or “doing business as.” Your business name gets filed with the state. You will also have to obtain an EIN, or employer identification number, which is your federal tax ID. This is what you use to report revenue and pay taxes to the IRS. Yes, all businesses must report and pay taxes to the government.
Research any federal, state, and local business licenses and permits that might apply to your particular business. You should also consider whether it makes sense to take out a small business insurance policy that will offer protection in case someone is hurt on your premises or by your products.
If you are making and selling handmade or handcrafted items for children, you are subject to a wide range of child product safety regulations – just like any large manufacturer. Anything sold to children has safety requirements for flammability, lead content, and choking hazards. There are also special requirements for marketing to children online.
Once you are set up as a small business, you can then focus on selling your products -- whether it's online, to retail outlets, or at craft fairs and farmers’ markets. If you are selling a taxable product in your state, it's your responsibility to collect and pay sales tax on that item. You collect the tax at the time you sell the product and then you are required to file and pay the taxes either annually, quarterly, or monthly, depending on the amount of sales tax you collect. If you sell online, you will need to check the online sales tax rules for your state or consult with an attorney.
Usually no special permits are needed for you to make your goods or crafts at home as long as you do not disrupt your neighbors. If you live in a residential area, however, and suppliers, delivery services, and buyers regularly come and go from your home, you might need a special license. If such licensing is not available and your business is going well, you should consider moving to a retail location.
If you plan to sell your items online, you will need a website and a host. To sell physical goods, you will need a service that can securely handle e-commerce transactions and credit card or PayPal processing.
Alternatively, or additionally, you can sell your crafts on sites like Etsy, Craigslist, Amazon, eBay, and many others. At these sites, you register as a merchant and pay some combination of a participation fee to list a product and a “closing” fee when you actually sell something.
Generally, these sites do not require a permit or license to sell your items, but you will be expected to pay sales tax for items sold within your state, as well as income tax. When you have a robust online presence, it is easy for taxing entities to find you.
The law surrounding the sale of handcrafted and handmade products can be complicated. Plus, the facts of each case are unique. For more detailed, specific information, please contact a business lawyer.
