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Brian Kent
02-02-2013, 7:08 PM
I have had a few requests to buy my woodworking pieces, but not nearly enough to go through the hassle of business insurance and license. I have decided to give it away or not, but not to sell anything in this era of my life.

Having said that, I assume it is legit to have someone to hand me a piece of wood and say, can you turn this into a communion set? Then I hand them back a communion set. The wood always belonged to them and I performed a free service for a friend.

I assume the line is crossed if I say, "You can have this communion set that I just finished, and I would appreciate it if you could replace the wood. It cost me about $20 for the wood." In that case I would be accepting money for a product I made out of wood I own, even if the money is voluntary and only replaced raw materials.

I am not asking what seems right, because ethically it passes the smell test, but what is legal without getting into sales tax, licenses, or business insurance. Any opinions?

Matt Meiser
02-02-2013, 7:20 PM
I'd approach it from the point of view of "you buy the materials and I'll make this for you". Or even actually have them call the supplier and pay for materials that you'll be picking up. I do exactly that for my parents. Sometimes they pay, sometimes I buy something and give hem the reciept to pay us back. And occasionally I'll use something from my stash and just tell them what replacing it at my supplier will run.

Gary Hodgin
02-02-2013, 7:55 PM
I'm no legal expert but I can't see the difference in what you described than me mowing my neighbor's lawn with her gasoline. I don't see where you received anything other than a thank you and a feeling that you did something worthwhile.

Brian Elfert
02-02-2013, 8:32 PM
I think you would be in the clear, but government and lawyers have strange ways of thinking. Government has decided that if you race an automobile as a hobby and the race offers a cash prize for the winner that you are a commercial operation. This means if you use a motorhome to tow your race car that you must have a DOT number, commercial insurance, and drivers must have commercial drivers licenses.

Jim Koepke
02-02-2013, 9:05 PM
This is one of those strange questions that doesn't have a real good answer.

If a person sells their art and has more expenses than profit, after a few years the IRS will not allow the deductions and calls it a hobby. What does one do then as far as paying taxes?

Is there some way that if you give a chair to a friend and it breaks while someone is standing on it you are free from liability?

We sell items at the local farmers market. Our insurance agent said we should up our insurance to cover any liability. We have to have a business license. When we had a little income from sales on ebay our tax preparer said it was better to not claim it. Now we have a business license and have paid state sales tax on our sales. If our preparer says not to pay, they are going to have to put it in writing.

You may need to talk to an attorney to get an answer you can depend on as qualified to your situation.

jtk

Mike Cruz
02-02-2013, 11:31 PM
Brian, this IS a good question. But it is flawed... You are basically asking for legal advice. But you end it with "any opinions?". So, you can get a lot of opinions, here. Or you can ask your or a local attorney.

If you want my opinion, for someone to replace the wood by giving you $20, you neither made money, nor did you sell an item. I see no difference between someone giving you wood (that you didn't have) and you making something for him, and you having wood, making something as a gift, and they replace the wood for you. But that is my opinion...not necessarily fact.

The problem you are going to run into here on the forum is simply this: The fact that you asked this question means that you are a person that thinks about these kinds of things, and obviously CARES about the right and wrong of it. I've found that most just don't do either...

Brian Kent
02-03-2013, 12:24 AM
Yes, Mike, I should clarify that I am not asking for legal advice, just thought and opinions.

Lee Schierer
02-03-2013, 8:59 AM
What's the difference if you buy a used TS, clean it up and sell it for more than you paid for it? If you occasionally sell something you make it is still a hobby. I'm not a tax lawyer and never played one on TV, but I don't think the government really cares about the small time "profits" from a hobby. If you feel like it, you can always fill out schedule C with your taxes and include the sale as income, then deduct your expenses and materials costs. I think you'll find in most cases it is a wash unless you are making large sales on a regular basis.

Brian Kent
02-03-2013, 10:02 AM
My greater concern is the insurance company investigating a fire and asking, "have you ever sold your work? You do not have business insurance." If I ever want to regularly I will just get the insurance.

Ken Fitzgerald
02-03-2013, 11:21 AM
I have had multiple chances to sell some of my turnings and furniture I built. I don't want my hobby to become a business. I jumped at the beckon of a telephone and pager for 34 years. Now in retirement, I want to do what I want, when I want. I don't want my hobby to become a business where I have responsibilities beyond those I set for myself.

My insurance agent is also a personal friend. We have fished mountain lakes and streams together. We have elk hunted together. I have spent hours helping him hunt for his lost brother who wandered out of elk camp. I have helped fight a horse's head while he forced necessary medicine down the horses throat. AND YET........when ever I mention what would I need to start a business and how it would effect my insurance rates.....he skillfully asks a few tangent questions....and the discussion gets led elsewhere.

I don't want to get into trouble with the IRS....I am a straight arrow. I don't knowingly break laws. I don't want to violate my homeowners insurance policy.

I am with you Brian!

Larry Whitlow
02-03-2013, 2:23 PM
I think insurance companies and the IRS have different viewpoints. The IRS is concerned that you pay taxes on profits from a “business” and that you not deduct expenses related to a hobby from other income that can be taxed. This is pretty clear if you read the IRS bulletin on what constitutes a hobby vs. a business. An insurance company is concerned with increased hazards. Commercial woodworking is a fairly high hazard that is not contemplated in the typical homeowners policy. The question you should ask your insurance agent is what impact your hobby/business has on a property loss, say a fire or theft, in your home. Ask when additional coverage is needed for the activity. The same questions should be asked regarding third-party liability losses and any completed operations that may happen as a result of your hobby/business. What you do may have no impact at all. The best way to find out is to ask your agent.

Even if you are a pure hobbyist, with no sales receipts, you have some increased risk. If that three-legged stool that you gave away should collapse and cause injury, you could find yourself in court. If that bowl did not contain the proper Prop 65 warnings (California), you could be held liable. Or, maybe a better way to say it is the injured party’s attorney is going to try and show you were negligent. The fact you did not charge anything for the stool or bowl will not matter. Even if you operate as a legitimate nonbusiness, best you make sure you are comfortable with your liability insurance limits. Again, I think it best to talk to your insurance agent or rep. – they will provide the real info youneed.

Mike Cruz
02-03-2013, 6:34 PM
Brian, bottom line for me (to add to what others have just said) is that I decided to become a business so that my shop, my equipment, and my tools would be covered in the case of a fire or catastrophe. Also, I not only became a business, but an LLC. That separates my business from me (and my wife and our assets) personally. At least in the case of anything shy of gross negligence. So, my business insurance also includes liability. This is all above and beyond my personal insurances and umbrella. I've found that most people really don't give a darn tootin' about it. They aren't worried about it. They think it won't happen to them. I'm not saying they are right or wrong. I just don't want to take that chance/risk.

Yeah, I'm going to have to bring in $1,500 or so a year just to break even. But that is what I need to do, because, like Ken, I'm a straight arrow...

Ed Aumiller
02-03-2013, 6:37 PM
Agree with Larry...

I know from talking with insurance agents in my area... If I SELL anything (or if I trade anything for value) then it is a business loss and NOTHING is insured...
Last summer I changed insurance companies and talked with many of them and the answer was the same... sell anything (or trade, barter, etc) and it was a business and NOT covered...
Not an agent or lawyer... check with local/state laws before you do anything...

Located in Virginia as info....

Andrew Joiner
02-06-2013, 6:17 PM
I've talked with insurance agents and lawyers about this over the years. Yes, if you sell anything you want commercial insurance. Commercial liability costs a lot more than personal.

If you give away a product you're much better off. I suppose a hobbyist could be sued if a product he gave away caused an injury, but personal ( homeowners or renters) liability insurance would cover that if it's within the limits.

You could protect yourself a little by donating the product to a church or charity. They could sell it and you could deduct it's value if you have earned income. Still if you did this a lot it would increase your odds of the rare injury. Your personal insurance covers the very slight chance of a lawsuit.

However you'd have a hard time getting personal or commercial insurance at a fair price again after any claim.

Mike Cruz
02-06-2013, 6:38 PM
I just contacted Stat Farm, and they don't insure woodworking businesses. I can get it through Erie, it is just going to cost more than I wanted to spend...but now, I have to.

nancy barry
02-11-2013, 7:33 AM
Many insurance companies have a rider that can be added that covers use of hobby or small business equipment in the home. I bought it for our home via USAA as I have kilns. They are properly wired, vented, etc.. Yet, something could happen and full coverage is important.

Good Luck
nancyB

John Coloccia
02-11-2013, 8:00 AM
I just got business insurance for my business....and I'm an LLC. Yeah, the LLC cost $1000 to setup through a lawyer (though you can do it yourself), and yeah, business insurance costs me $600 a year, but now all of my tools are covered, all of my customer's guitars are covered, and liability when they're on my property is covered. It's a little scary having customer's guitars in your workshop. 1 older guitar can easily be worth $10,000 or $20,000 on it's own, and I would NOT be covered in case of fire, burst pipe, theft or anything else without the business insurance.

Dan Hintz
02-11-2013, 8:20 AM
I just got business insurance for my business....and I'm an LLC. Yeah, the LLC cost $1000 to setup through a lawyer (though you can do it yourself)

Ouch... I think I paid around $250 to do it myself ($200 for the articles of incorporation, and $50 in various fees for other stuff). Download the 2-3 pieces of paerwork from the web, fill it out in 15 minutes, attach check, mail. Every state has an online repository of the forms, and every one I've seen gives you a step-by-step guide to determine what forms you need to fill out. Paying a lawyer to do it seems very wasteful... a patent application, okay, but not this stuff.

Mike Cruz
02-11-2013, 8:28 AM
Nancy, that is interesting. Maybe USAA does things differently. In my search for business insurance, in Maryland, I've found that: State Farm does little with business insurance, but what they even cover woodworking. I hired a guy to search all available insurances to see what he could get. Finding a company that will cover woodworking was difficult, but no one beat Erie. Erie is who I have, and I can't add a rider on my homeowner's policy for the tools etc. They MAY be able to cover my shop/building (separate from the house), but the equipment, tools, and liability are all separate. Now, John's seems to be cheaper than what mine will be, but I have a feeling that is a simple matter of the amount in tools and equipment. As far as Erie is concerned, equipment is something that you can't easily "move", and tools are mobile things. They are insured at different rates because tools can be stolen easier than equipment. That said, The "value" of my equipment is about $30k and tools at about $10k. That'll put me at about $800 a year in insurance (with liability). $5000 in equipment and $3000 in tools ($2.19 per $100 value for tools, $1 something for equipment) equates to roughly $100 a year.

John, does that pretty much make sense as to why yours is $200 cheaper per year? Or do you have the same "value" in equipment and tools? And who are you through?

John Coloccia
02-11-2013, 8:41 AM
Nancy, that is interesting. Maybe USAA does things differently. In my search for business insurance, in Maryland, I've found that: State Farm does little with business insurance, but what they even cover woodworking. I hired a guy to search all available insurances to see what he could get. Finding a company that will cover woodworking was difficult, but no one beat Erie. Erie is who I have, and I can't add a rider on my homeowner's policy for the tools etc. They MAY be able to cover my shop/building (separate from the house), but the equipment, tools, and liability are all separate. Now, John's seems to be cheaper than what mine will be, but I have a feeling that is a simple matter of the amount in tools and equipment. As far as Erie is concerned, equipment is something that you can't easily "move", and tools are mobile things. They are insured at different rates because tools can be stolen easier than equipment. That said, The "value" of my equipment is about $30k and tools at about $10k. That'll put me at about $800 a year in insurance (with liability). $5000 in equipment and $3000 in tools ($2.19 per $100 value for tools, $1 something for equipment) equates to roughly $100 a year.

John, does that pretty much make sense as to why yours is $200 cheaper per year? Or do you have the same "value" in equipment and tools? And who are you through?

I forget what the numbers where, but I think my tools were about $30,000 and maybe $50,000 for customer property plus liability. I'm going to have to lookup who I'm through. I have an agent that takes care of everything...I just write checks. Having a good agent to handle all of your insurance really makes sense, if you don't already have one.

John Coloccia
02-11-2013, 8:55 AM
Ouch... I think I paid around $250 to do it myself ($200 for the articles of incorporation, and $50 in various fees for other stuff). Download the 2-3 pieces of paerwork from the web, fill it out in 15 minutes, attach check, mail. Every state has an online repository of the forms, and every one I've seen gives you a step-by-step guide to determine what forms you need to fill out. Paying a lawyer to do it seems very wasteful... a patent application, okay, but not this stuff.

There are advantages to going through a lawyer. For example, when it came time to change the business name and make sure that everything got updated properly, my lawyer AND CPA got together and figured out exactly what needed to get done. I don't think they charged me a dime, and it wasn't an obvious series of steps either. For a few hundred bucks here and there, I almost always go through a pro unless it's something that I know something about.

For example....wiring? No problem...I'll rewire the whole house if I have to. Plumbing? I won't even change a valve. Painting? Noooo problem. Drywall? It's a sure bet that I don't touch drywall....ever. Accounting and business stuff? That's for my CPA and lawyer to figure out. I'm busy running my business.

byron constantine
02-11-2013, 9:54 AM
I take some of my turnings to a senior faie every year and they are sold to who ever buys them. I take them to the fair
and they do all the work for me. When the fair is over i go back and collect what did't sell and they mail me a check for
what sold. I have been doing this for several years as several hundred others. Byron

Myk Rian
02-11-2013, 10:37 AM
How many people at flea markets are insured, or even care/need to be?
My guess is close to 0%.

Mike Cruz
02-11-2013, 11:18 AM
Okay, I think my quote is for $1M in liability, and with a few more bucks in tools/equipment, and that your insurance company may/may not distinguish between tools and equipment, that would account for the extra $200. Thanks, John.

Mike Cruz
02-11-2013, 11:19 AM
I think you hit the nail on the head, Myk... "Don't care to be".

Brian Kent
02-11-2013, 11:36 AM
I decided to write to AAA and ask the question. I haven't heard back from them but my assumption is - sell nothing. I enjoyed donating some bowls to the church for an auction yesterday, where the whole amount went to a church group. Very satisfying.

Mike Cruz
02-11-2013, 11:50 AM
Brian, I'd love to hear what their answer is when you get it. Thanks.

Andrew Joiner
02-11-2013, 12:47 PM
I just got business insurance for my business....and I'm an LLC. Yeah, the LLC cost $1000 to setup through a lawyer (though you can do it yourself), and yeah, business insurance costs me $600 a year, but now all of my tools are covered, all of my customer's guitars are covered, and liability when they're on my property is covered. It's a little scary having customer's guitars in your workshop. 1 older guitar can easily be worth $10,000 or $20,000 on it's own, and I would NOT be covered in case of fire, burst pipe, theft or anything else without the business insurance.

John, Does that include product liability? $600 a year is cheap. Did they give you a yearly earnings maximum? What insurance company did you use?

I was quoted $500 a year for liability only including products from Travelers. That was if I made less than $15,000 a year( assuming gross on that). Machines/tools added about $100 a year for each $10,000 in replacement cost.

John Coloccia
02-11-2013, 12:57 PM
John, Does that include product liability? $600 a year is cheap. Did they give you a yearly earnings maximum? What insurance company did you use?

I was quoted $500 a year for liability only including products from Travelers. That was if I made less than $15,000 a year( assuming gross on that). Machines/tools added about $100 a year for each $10,000 in replacement cost.

No yearly earning maximum. I need to look up the company because I went through an agent...and I do highly recommend going through an agent as they will look around and find the best rates for your specific situation. You can maybe do it yourself but you will spend a LOT of time doing it.

I'm not sure about product liability. I build guitars so I'm really not too concerned. There's probably something there that I didn't pay attention to. If someone manages to break through the LLC to me, I personally carry an umbrella policy as well. This is for when Pete Townsend throws one of my guitars out his hotel window and it lands on some lawyer's Rolls Royce, and I get sued because I should have made the guitar lighter.

Mike Cruz
02-11-2013, 1:11 PM
John, make sure you never sell a guitar to El Kabong! Remember him? :D

Brian Kent
02-11-2013, 1:44 PM
Brian, I'd love to hear what their answer is when you get it. Thanks.

You bet. I will post their answer.