YOU GUYS... I am so excited to share that I have finally "legitimized" my business! Making my handmade biz legit is something that I've always known I should do, but never really knew where to start, what to do, or who to call on for help. Let me tell you now, it is seriously one of the easiest processes I have ever been through! I have a business degree, but I think the only applicable thing here I learned in school was knowing the difference between a sole proprietorship, a partnership, a LLC, and a corporation. Which, don't get me wrong, is definitely good to know. But once you've decided on that it's kind of like now what?!
Determining the type of business structure I wanted to have was the first actual step I made in this whole process. I will make another post about this someday because I do get a lot of questions about it and was haunted in a way by the legalities associated with what I make for a while. Briefly, if you don't know, the primary product that I make are baby bodysuits from no-longer-needed tshirts. Many of which have sports teams, brand names, etc. on them that are all trademarked/registered to their respective owners. If you don't own the rights to a trademark then technically you shouldn't be selling items with said trademark on them. (Again, I will discuss this in detail in another post because there is a lot of talk in the handmade-world about this topic specifically). Basically, if anyone wants to sue me for using these trademarked items I wanted to make sure I wouldn't lose everything.
Forming an LLC is what worked best for me due to the nature of what I create. I always knew that this would be the best option for me, but it was nice having it confirmed by a lawyer. No matter what you make, I highly recommend having a 'staff' of professionals on stand-by to use when you need them. Luckily, I had some connections and was put in touch with a lawyer who spoke with me on the phone completely free of charge for about half an hour. Although brief, our conversation was full of good questions and good answers. He confirmed a lot of the things I was already thinking, and I was ready to move forward with starting this LLC stuff!
The next professional that I met with was an accountant. Again, our meeting was brief, but full of good information. He too, confirmed that an LLC would be a good option for me to pursue. I told him that I wanted to be very involved with doing the paperwork, filing, and so on... so he gave me a starting point and let me know to contact him if I needed further assistance. Here are some of the questions that I asked during our meeting - maybe it will help you generate some of your own!
- What is considered a write-off?
- Does it matter how supplies, booth fees, any related costs are paid for? Can I use cash, or does it need to be from an account specifically dedicated to my business?
- How much do I charge for sales tax, and when do I need to charge sales tax?
- Can I write off the extra bedroom in my apartment that I use specifically for crafting?
- Is there a way to pay my friends/family that help me with cutting or assembling items on occasion?
The next steps may vary depending on what state you are located in. I will be sharing the process that I went through in the state of Ohio.
#1 - Filing for Articles of Organization. This is done through the Secretary of State, here is the form for filing in Ohio. I printed mine and mailed it in because I'm old fashioned like that, but I think there is a way to submit it online too. The first time I sent in my forms, I didn't fill out the second page of the application because the way I read it was that I was naming someone who could also be an owner in the company and I didn't want that. The Secretary of State send everything back to me and said I had to complete it and resubmit to them. I ended up filling out the second page with my information as the "original agent" and they took it, so it must have been alright! Originally, I sent everything September 17th but because I missed that page the first time I didn't get my actual Articles of Organization back until October 16th. So just do it right the first time and it should only take a couple weeks or so :). Also, I see the form was updated on 9/24/15 and it now only costs $99 to file if you don't need it expedited. I paid $125! Boo!
#2 - Filing for an Employer Identification Number (EIN). Done through the IRS - very important, the IRS! I initially went to www.irs.com, you need to go to www.irs.GOV, oops! When I got to the end of the form on the .com site it wanted me to pay $177 for a filing fee, which I thought was a little much. I emailed my accountant and he said no, absolutely not, you should not have to pay to get an EIN. That's when I realized I had typed in the web address wrong 0:-) To help you, here is the direct link to apply for your EIN. The application process is simple, you just fill in some information and answer a few basic questions. I was immediately supplied with a PDF from the IRS that had my EIN listed - and we're off to the next step…
#3 - Opening a bank account. Pretty simple step here. I went through PNC Bank because that's who all my personal account are through. I didn't research it or try to figure out who the best was, I just went with what I already have. A business bank account typically has to be opened by a manager of some sort so be sure to make an appointment in advance. Also take your Articles of Organization and EIN with you.
#4 - Register with Ohio Department of Taxation. I mean, how many different government agencies do you have to file with?! Lol. These are the people you talk to to get your Ohio Vendors License, which is applicable if you are going to be doing craft shows. Here is a direct link to the form. You will need to have your NAICS number available to complete the online application. I went with 454111 because I primarily do sales online. $25 was the fee for obtaining my vendor's license. The Ohio Department of Taxation can also help you determine what to charge for tax in your specific area (there may be state and local tax involved, just depends on where you are at).
Now that it's all official, what changes?
The only online avenue that I use for sales is Etsy. Going forward I will have to charge tax on any orders that are made in the State of Ohio. Step by step instructions on how to add this to your Etsy shop are available here. I recommend reading through other tax related articles on the Etsy Seller Handbook too - you'll be a tax pro in no time! Also, add your brand new EIN to your profile by going to "Your Account Settings" Taxpayer ID tab.
When I vend at craft shows, I will have to charge tax now as well. I am still in the process of figuring this out. Ideally, I would like to have the total with tax come out to an even amount. As you can imagine, I'll just have to crunch some numbers to try and make that work out. Otherwise, I will have to start taking coin change to shows with me and frankly, I just don't want to #stubborn! :)
Before I go, I'll just add a quick disclaimer that I am not by any means a professional or source of concrete advice. One of my goals with blogging was to share what I do know and what I've been through so that other creatives might benefit from it. Please do not take what I'm saying here as legal, binding, solid, or anything like that. I'm only sharing based on my personal experience! If you do have questions or would like more detailed information I'm happy to help or point you in the direction of someone who can, shoot me an email firstname.lastname@example.org.