? about the bussines side of things

Ernie Swanson

Ernie Swanson

SASSY PINK LUUNCHBOX KNIFE MAKER
I was just thinking that this knife making this has gotten a good hold on me now.
I was wondering that if I start buying tool, materials, ect. With a business wouldnt all that be a write off?

So If I got a business now, wouldnt I get back what I am putting in kind of or is that not how it works?

I know its still early in my knife making venture but I like to think about stuff and plan ahead.

Thanks for any help!!!
 
Write offs are great if you have a real job to pay the bills and have something left over to protect from the taxman.

If you are depending on the knife income to pay all the bills the writeoffs are not worth anything.

George
 
Write off are always good, even if you don't show a profit. Once you get your sales tax number from your state which you will need to be a legit business, then you need to start itemizing all your knifemaking expenses. Even if you show a loss it will keep you from having to pay at the end of the year.

Right or wrong, the IRS requires you to claim all income you make in a year. I realize not all people do this esp. with a hobby like knifemaking. But, according to the law you are supposed to claim all knife sales as income. If you don't itemize out your expenses you will end up owing the government for your income. However, if you itemize out you expenses, it will help decrease the amount you owe.

Keep yourself out of trouble and don't try and hide anything from the Gov. Many people don't even consider claiming their knife sales because to them it's just a hobby, not their primary income. Which is OK until the time they get audited and find out they were supposed to be claiming it and they wind up having a huge amount they owe the gov.

In the state of Missouri you are even supposed to claim stuff like garden produce and privately butchered meat as income. I know a gentleman that was audited one time who was a dairy farmer and he butchered a beef every year. He had to pay back taxes because he didn't claim that as income.

I suggest you go talk to a good accountant if you start selling very many knives just to make sure you cover your butt with the IRS.

I've been pretty much self-employed all my life except for a brief 6 year stretch. I never even had heard of a W2 until I was in my early 30's. Itemizing expenses has always been part of keeping the IRS at bay for me. Any self-employed person will tell you the same thing.

There are lots of deductions out there for self-employed people to take, but if you don't have an accountant you won't know all you can actually take off.

Even if you have another means of making a living, you should still keep your knifemaking seperated and itemized out.

Good Luck!

Just My .02 cents worth (Hmmmm, wonder if I can take that off as a deduction?2thumbs)
 
Hi Bigern,

While what George may have made sense to what him...he is wrong. I have been selling custom knives full time for over 15 years. This is my only source of income. Yes, I have something left over and "Expense" everything that I legally can.

Remember, George lives in Canada...not the same tax system as the US.

Knifemaker 3 is putting the cart before the horse.

First, you find a good CPA.

Second, determine which business entity you want to utilize. LLC is the preferred entity for small business start ups.

Third, don't get caught up in the "write off's" they only save you about 30 - 40% of each dollar spent.

You expense non-durable items. Belts, steel, handle scales, etc.

You depreciate durable items (tools, machines, vehicles, etc.)

This is why you go to a CPA.

I have an MBA, graduated the HR Block Course, worked for HR Block and took over 100 hours additional tax training. I still use a CPA.

If you get really successful you can look at adding a Tax Attorney to your team.

Generally those small business owners who get in trouble at an audit have not separated their business entity finances from the personal finances.

You need the following for your business:

Separate Bank account
Separate Credit Card
Separate Phone Line (wouldn't hurt)
Separate Address (PO Box will do)

If you want to expense you home office. You need to follow the IRS Guidelines. Generally it is best just to put a small desk in your shop.

There are lots of rules and guidelines to follow. That is why you are best served going to a professional who specializes in small business entity set up and taxes.

BTW, you can expense your meeting with the CPA and their subsequent billing.
 
Les, I disagree with you to a point. I operated simply under a sale tax liscense for years and never set up my knifemaking as an LLC. But, I could still take off all my expenses and inventory off come tax time. And I've always used a CPA.

The only thing an LLC. will do is seperate your business from personal. You don't have to have a seperate address either. I set my screen printing business up as an LLC. and still have the same address as my home address as my shop is located on the family farm. As long as your account sets it up right it is perfectly fine. However, you must then keep all expenses in your LLC. seperate from your personal stuff.

And the only thing the LLC. really does is protect you from loosing all your personal stuff should someone sue the LLC. All they can get is what is tied to the LLC.

Definitely get a CPA. They will help you out more than anything. My CPA set up my LLC. for me and told me how to keep everything seperate so if I ever get sued I won't loose everything I own.
Good Luck!
 
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Hi Knifemaker 3,

When someone asks a question about "business" I answer in that vein.

The only thing an LLC. will do is separate your business from personal.
Click to expand...

Actually it provides you with a level of security with regards to law suits. If someone decides to sue the maker...they can only go after the business.

The way you are operating, they can come after your business and personal assets as there is no separation.

If you are going to be a business then you should set up a business. You need to build business credit by having business credit cards and perhaps taking a loan out in the business name.

Having a separate phone number allows you to conduct business on that phone. They way you are set up, technically (if audited) you would have to go through your phone bill line by line to show which calls were business and which were personal. Failure to have that ability will allow the IRS to disallow the expense. You will have the expense removed from your return and you will be taxed and have to pay a penalty.

Having a business only phone line would eliminate that.

As well Dunn and Bradstreet (the group that keeps track of your business credit score..similar to Fair Isaac who determines your overall credit score). will take into account all "Business bills". Phone, Cell Phone, Waste, Cable, Internet, etc.

Lets not forget having an LLC gives you a lower tax rate (your set up has your business paying the same rate as your personal tax level). As well you can set up a business retirement plan (usually a SEP..Simplified Employee Plan). This allows you to deposit up to 35% of your pre-tax profit into it.

Any way the business advantages of having a business entity far outweigh the way you are operating.

Please check with your CPA and ask him/her about the advantages of a LLC.

Yes, you have to fill out both State and Federal Quarterly reports. Fairly simple and your accountant would be more than happy to fill them out for you.
 
Les Robertson said:
Hi Knifemaker 3,

When someone asks a question about "business" I answer in that vein.



Actually it provides you with a level of security with regards to law suits. If someone decides to sue the maker...they can only go after the business.I stated that very thing in my post above.
The way you are operating, they can come after your business and personal assets as there is no separation. You are wrong as everything is seperated from my personal stuff even though it's located on the family farm. Again, I stated in my above post that you have to keep everything seperated. Please reread my post.
If you are going to be a business then you should set up a business. You need to build business credit by having business credit cards and perhaps taking a loan out in the business name. This is true.

Having a separate phone number allows you to conduct business on that phone. They way you are set up, technically (if audited) you would have to go through your phone bill line by line to show which calls were business and which were personal. Failure to have that ability will allow the IRS to disallow the expense. You will have the expense removed from your return and you will be taxed and have to pay a penalty.

Having a business only phone line would eliminate that. I do have a seperate phone and number for the business.
As well Dunn and Bradstreet (the group that keeps track of your business credit score..similar to Fair Isaac who determines your overall credit score). will take into account all "Business bills". Phone, Cell Phone, Waste, Cable, Internet, etc.

Lets not forget having an LLC gives you a lower tax rate (your set up has your business paying the same rate as your personal tax level). As well you can set up a business retirement plan (usually a SEP..Simplified Employee Plan). This allows you to deposit up to 35% of your pre-tax profit into it.

Any way the business advantages of having a business entity far outweigh the way you are operating.

Please check with your CPA and ask him/her about the advantages of a LLC. Again, reread my post. I do have my screen print business under and LLC. I also now make knives under the LLC. But, for simple tax write offs like the poster asked, you don't have to have an LLC. to enable you to write off your expenses and run a legit business in the eyes of the IRS. Farmers have done this for years. As I stated the LLC. is only good to keep your personal assets protected during lawsuits, bankruptcy, etcYes, it does give you some other advantages as well but the main advantage is to protect your personal assets.

Yes, you have to fill out both State and Federal Quarterly reports. Fairly simple and your accountant would be more than happy to fill them out for you.
Click to expand...

Please read the replies to your post in red. I also edited my post above by underlining the statements I made. I'm not trying to be hateful or contrary, just wish you would have read my post above better before making some of your comments. And you can set up and LLC. at your home if done properly. Again as I stated talk to your CPA
 
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Hi Craig,

As I stated the LLC. is only good to keep your personal assets protected during lawsuits, bankruptcy, etc. Yes, it does give you some other advantages as well but the main advantage is to protect your personal assets.
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Stating that the main advantage is to protect yourself is wrong. Probably the biggest advantage is the lower tax rate. There are a few more (of the many) listed below.

How about:

1) Lower tax rate

2) Set up a corporate IRA (SEP)

3) Forces separation of personal and corporate expenses

4) Helps you build business credit

5) Allows you to sell all of the business assets your purchased with your personal money to the LLC. At which time your corporation will be set up on a re-payment schedule to pay you back every dime plus interest. Note, only the interest is taxable. So the money you receive from this sale is not taxable (including social security and medicare) and your business then gets to expense this.

Eventually you have no personal money tied up in your business.

It is like you are the bank and receive the interest.

Anyway, I was discussing the business of custom knives (not a print screen business...yes I saw that). What I listed above are just a few of the benefits. From running a Custom Knife Business.

I saw your comment about your screen print business.

Obviously you are happy with your set up.

What you have set up is the easiest...not the best.
 
So the safer route seems to be going with a llc!!

I am going to talk with a cpa on friday so I can get alot of questions asked!

one other question: if I decide to go with a llc do I need to hire a lawyer?
 
Ernie Swanson said:
So the safer route seems to be going with a llc!!

I am going to talk with a cpa on friday so I can get alot of questions asked!

one other question: if I decide to go with a llc do I need to hire a lawyer?
Click to expand...

I did .I have a cpa. and a tax attorney for my archery supply company.I have not set up a seperate knife company yet. but it is very easy to do once you have the llc. in place.
 
Hi Ernie,

It will depend on what your state requires. In Georgia a CPA can set up a LLC.

At this point you have all year to get your tax strategy in place. I suspect you won't need a Tax Attorney for a couple of years.
 
I went and talked with a cpa this morning.

He wouldnt even talk about a llc, he just said to go and get a business checking account for federal and to fill out the forms for state tax id.

He said to do a sole proprietorship.
 
Hi Eric,

You need a new CPA.

Sometimes Accountants can be "near sighted".

You should ask him if he is a Sole Proprietorship. I'll be he is not.

Craig is set up as a SP for his knife business, but his other business is a LLC.

I think the standard answer to someone starting a new business is to go SP, just to see if the business stays solvent.

If for no other reason (and Craig and I agreed about this) a LLC will provide a layer of protection against law suits. With ours being such a litigious society...that is reason enough.

You might want to check www.Legalzoom.com. I believe you can set up a LLC on line.
 
Ernie
I agree with Les, find a new CPA that one just blew you off. This is a busy time of year for them and Im sure he didnt see enough dollar signs with your business.
Although you dont really have to have a CPA to set up a LLC you can do it yourself, just be sure to do your homework.
Also Les is right about the tax benefits, I dont want to repeat everything he said (very good info BTW) but suffice it to say when I first made the leap to the ranks of the self employed 10 years ago I didnt realize how bad the tax code can punish small business and self employed. Running your own business is not for the faint of heart, it is alot of work, more hours than you ever worked at a "regular" job. But in can be very rewarding.
Since deciding to go back to college I went back to working a real job, I had forgotten what it was like having to answer to someone else:(
 
I have a dillema about all of this.

I know It has been said to never got into a partnership and with knife making there is no reason to but. My brother and I have alway wanted to start a business working on and selling guns, He is a gunsmith and I do alot of work with stocks.

We were thinking about starting a business together and it would be a complete gunsmith shop and custom knife shop. every tool we would share, as in mill, lathe, HT oven, ect.
We both know we would both be at total risk for the company.
I like the fact that I would have the FFL too.

I am trying to find out what I got to do to build knives at my home, I live in a trailer park and our lease says no business conduct can be made!

My brother lives where we would be able to have a business for the guns and I would ave plenty of room for my knife making.

One thing I am unsure of is can I still have a tax deductable home office if I live 10 mile away form the business address?

Also looking for input on this type of partnership!!

Thanks for the help so far!!!!
 
Ernie,
Please take a moment before you start an LLC. Yes, they have their advantages, but they are costly to set up, costly and hard to maintain, and I have not been able to take any more deductions from my business than I did before I set it up in an LLC. Just one added expense to an LLC. is that your CPA will now have to fill out twice as many forms for you come tax time and will charge you at least double or more what he currently charges. Mine went from @ $125 to @ $350 to have my taxes prepared.

Your CPA gave you good advice. You do need to make sure your business will stay solvent before your set it up in an LLC. I've seen too many people get worried about setting an LLC up and they didn't stay in business more than 6 months simply because their business couldn't stay solvent.

And once again Les, I wish you would fully read my post before you start stating things I've done. I stated in one of my post that I also now make knives under the LLC. This includes marking them with BCO logo so that they are covered under the LLC. I am going to set it up soon to where I can start making them again under Blankenship Knives, but it has to be set up properly to also be covered under the LLC. That's where my accountant comes in.

The only advantage I've seen so far in 2 years of having the LLC. is the advantage of not loosing everything I own should I get sued. Otherwise, I really can't tell that it has helped any and it sure has made for a lot of extra work.

Not all businesses need to be set up in an LLC. regardless of what everyone says. If you trust your CPA, take his advice. After all, he has been to college for at least 4 years and is more up on tax laws then any knifemaker out there unless they are a CPA themself. If you don't trust your CPA, then go to one you feel you can trust.

I went 18 years making knives and taking deductions on the knife end of the business without having it set up in an LLC. Should I have gotten sued I could have lost everything I owned. But guess what, if you don't maintain your LLC. properly you can still loose everything you own if you get sued.

Good Luck!
 
Hi Craig,

Thought you were doing your knives under SP?

Ok, its an LLC.

I would suggest to you that if the only differences you see between an LLC and a SP is the protection against Law Suits. I would suggest you need to do a little more research.

How about the difference in the tax rate for starters?

Yep there is more paperwork...damn near takes me 10 minutes every 3 months to fill it out.

Yes, it costs more for LLC taxes than SP taxes. That in and of its self should tell you there are more advantages utilizing an LLC. If it wasn't worth the cost, time and paperwork...business's wouldn't use this business entity.

Any way, guys do what you want.
 
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