woodworking full time questions

[Jerry Nettrour]

Last month I was let go from my job. I am a family man with 2 small children but I am fairly skillful in woodworking. By the way I love reading in this forum. I began taking on customers on the side about 9 months ago and it has been steady and kept us afloat when my job would slow down. Now I am working full time in my small garage shop and have plenty of clients/jobs lined up to keep me busy into October. I use CL a lot in the furniture section to advertise and I am getting a lot of repeat customer and word of mouth referrals.

Woodworking is mainly a hobby and I love to do it, I never intended on making this my job it has just worked out that way at least for now. I have just been working everyday building but I know there are other important things I should do like obtain an LLC (something I have been reading about). I need to obtain a business license. I have never been self employed before and so I am just lost at this time. I want to claim my income and pay taxes and stay legal.

I have read a lot on the LLC and feel this may be what I need to do in order to limit my liability to just my company. The only thing the company would own is tools that could be replaced without any huge expense. I basicly want to stay legal and limit my risk/liability of potential lawsuites. I doubt I would ever be in a situation that would cause me to get sued but in the event that it did I would not want my real estate property to be a part of the law suit.

Any advice is appreciated.

Thanks,

Jerry

[Jim Becker]

First step...find a good small business accountant to help guide you through all the setup steps and options. And they can help keep you on track going forward, too. You need to speak with a good, local independent insurance agency that specializes in small business insurance, too.

[Lee Koepke]

You are asking the right questions.
Jims advice is solid. I am also heading in the more 'business related' direction, although not full time.

Good Luck!

[mark page]

Jerry,
All the above is sound advice. Find an accountant/attorney that can set you up with sound advice. There are advantages to an LLC and advantages to Incorporating. In my situation, this is why I do not do "in home hard fixture installations" like cabinets, stairs, etc. I sometimes do infrequent built-in bookcases or crown molding, but limit myself to furniture and decorative items for the most part. This is just MY personal situation only. Since my main income is separate from woodworking, the insurance costs is prohibitive for me to try to make a subsidiary income from installing permanent fixtures to a home and be covered legally in case of a mishap. Just my $0.02 worth and nothing more.

[John Lieberman]

Recommend that you contact your local SCORE chapter for free counseling and business advice. Try www.score.org to locate a group near you.

[jim oakes]

Very smart of you to be concerned about your risk/liability and potential lawsuites. The LLC may be cheaper than commercial liability insurance, but talk to a lawyer. I think you are wise to claim your income and be legal. You will sleep better at night with the liability and taxes done right.

I like the fact that you are already busy and got your "feet wet" by doing side jobs for awhile. That's much better than quitting a job to start your own business without knowing for sure you can earn money woodworking.

I started my own woodworking business in 1971. I was working a fulltime job in a friends woodshop and doing jobs "on the side". I quit my job at my friends shop when I won a bid to design and build a new law firms furniture. It's hard work but VERY satisfying.

[Dave Stuve]

If you go 'official' and buy any new equipment this year for your business you get some pretty generous deductions this year - things you usually have to depreciate over many years (tools) you can expense a big chunk of it this year thanks to the 2008 economic stimulus package congress passed. Make sure you take advantage of it if you can!

Good luck!

Dave

[James Hart]

Jerry,

I went over to the world of the self-employed about 5 years ago. Creating an LLC is very easy, you can get the necessary forms online.
I would echo the advice for an accountant, with a few caveat's. I started out with an attorney who also has his CPA. He walked me through the options of becoming incorporated vs LLC.
You'll need your LLC papers that have been registered with the state in order to set up a business account with the bank.
I found myself with a stack of checks made out to my company and nowhere to deposit them. (Good news,bad news)
The lawyer/cpa also advised that I get Quickbooks Pro, then use his firm for filing.
I would keep a reserve fund of roughly 35% of your cashflow. Self employment tax, which basically means you're paying both halves of the the social security, runs +/- 17.65% of your first $90 or $100K, plus income tax. The CPA will advise you on sending quartely estimated tax payments to the fed and state. The first year on this is pretty loose (as long as you pay in, I think, what you paid the previous year), not so from there on out.
You'll also want a state Tax ID so your material purchases are tax exempt, then you'll need to send your collected tax to the state each month. Make sure whether your state taxes services or not. If they do, and you don't add it to your quotes, you'll be eating it.
I'm not a lawyer or an accountant. Laws vary from state to state. Just making the point that the sooner you're up to speed on how things work in your state, the fewer the surprises come tax time.

Good Luck,

Jim

[Dave Tinley]

jerry-
You have been given some very good advise from previous posters.
The buisiness aspect and the paperwork my seem like a daunting task, but once organized, its pretty easy to keep track of things.
I use Excel for all my record keeping and its pretty easy. Quickbooks is a good program, although a little expensive for my one man operation.
I also use TurboTax online service, it runs about $100 to do my personel and buisiness tax. Yes I am frugal, I would rather have the cash flow for lumber, or equiptment if needed.;)
LLC is a very good way to go, and you may also look at S-Corps. This seems to be the newest trend in buisinesses.
In regards to your tools, be sure you have all receipts. You can depreciate tools you owned before starting your buisiness, and depending on the dollar value, you can depreciate them for up to five years, I believe.
Good luck on your endevor, and keep up posted on how it goes.

Dave

[jim oakes]

Jerry,


I would keep a reserve fund of roughly 35% of your cashflow. Self employment tax, which basically means you're paying both halves of the the social security, runs +/- 17.65% of your first $90 or $100K, plus income tax.



Jim

I bought an old building for my shop and showroom that had apartments upstairs. I built custom furniture for the apartments and a showroom when I had no paid work in the shop.
You pay no social security tax on rental income,so I got to keep my work and profit from it. I also got to enjoy a very custom showroom that was deductible.

See why I think it's smart to be legit? You can get very creative with taxes and you can't put a price on that worry free slumber.
Heck, I never wanted to be a landlord I just wanted to build, but my accountant talked me into it. I'm very grateful he did.

[Cliff Rohrabacher]

First figure out how you are going to market yourself.
Unless you can snaggle a client base you will starve.

[Tom Walz]

What Jim Becker said except find a bookkeeper associated with an accoutant. We have a bookkeeper once a quarter and the accoutant does the IRS stuff. Bookkeepers are cheaper. We got really lucky and found a bookkeeper who taught us how to do most of it ourselves.

Also I will second Mr. Rohrbacker's comments. It is easy to have a lot of work and forget to sell. Then you wake up and there is no more work.

Find the cheapest way to sell you can and do it forever. Maybe run a new Craigslist ad every day. Avoid one shot expensive things. Advertising takes 6 months to start working.


Tom

[James Ayars]

I own two businesses. One is an S-Corp and the other is an LLC. The S-Corp is a service provider, with~20 employees, while the LLC is involved in renting/leasing commercial real estate and has only two partners. We talked with an accountant and an attorney to decide on each. I would not have started either business without getting clear guidance from an attorney on liability issues.

We use the book keeper on a weekly basis then turn the required paperwork over to the accountant once a year for him to do the K-1's. A book keeper is a LOT cheaper plus she can answer the phone while she's in your office. We use Quick Books Pro and had our acountant send someone over to show our book keeper how to set it up so it would be easier for the accountant to do the taxes at the end of the year. Accountants here charge by the hour so easier for them means fewer hours and less cost to me.

Good luck.