Business Law

Crafting for Fun and Profit

No matter where you look, a crafty generation of Americans is making things – sweaters, hula hoops, soaps, drink coasters, cupcakes, wood products and more.

When crafters have created all that they need for personal use, they start giving their crafts away to friends, family and neighbors. When they’ve saturated that market, many ambitious crafters start to think seriously about selling their handmade and handcrafted goods for profit.

As long as they sell just a few items by word of mouth, small crafters often avoid operating as a business. But if the plan is to advertise, or to sell online, in shops or at craft fairs, crafters who want to sell their products to a mass market should form a small business and pay sales and income taxes.

Form a Small Business

First, you need to select a business entity. For most crafters, this will be a sole proprietorship. You will need to choose a name for your business, called a DBA or “doing business as” identification, and file it with the state. You will need an EIN, or employer identification number, which is your federal tax ID. It is free and issued by the federal government. Form SS-4 is available on the IRS website.

Research any federal, state and local business licenses and permits that might apply to your particular business. You might also want to take out a small business insurance policy that will offer protection in case someone is hurt on your premises or by your products.

Take Care when Selling Children’s Items

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.

Paying Your Taxes

Once you are set up as a small business, you should have no trouble selling your products to retail outlets or at craft fairs or farmers’ markets. At fairs or markets, you must collect sales tax.

As a salesperson, you are responsible for collecting tax on behalf of your state and reporting it every month. The only states without a sales tax are Alaska, Delaware, Montana, New Hampshire and Oregon.

Working from Home

Usually, no special permits are needed for you to make your 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 craft business is going well, consider moving to a retail location.

Selling Your Crafts Online

If you are planning 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. There is currently no sales tax on online sales out-of-state, but pending federal legislation could change this.

A Business Lawyer Can Help

The law surrounding the sale of handcrafted and handmade products can be complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a business lawyer.

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