Woodworking Home Business?

[Pat Germain]

Although I wouldn't consider trying to make a living at woodworking these days, I have been kicking around the idea of starting a home business. I was thinking it might be beneficial to be a licensed business for when I sell a few cutting boards to coworkers or make a bookshelf for my neighbor; keep it all nice and legal with sales tax.

I might also like to sell some band saw boxes at a craft fair, for example. By no means am I talking about opening a production shop or anything that involved. No employees. Just me.

I'm thinking of registering as an LLC and getting a tax number. I have a CPA whom I can consult to keep me out of trouble with the IRS. Does anyone have any experience with this they'd like to share?

Thanks!

[Neal Clayton]

you'll probably have to get permission from your city council/zoning board too. in most states woodworking qualifies as light industrial activity, so you'll need the proper permits to operate such a business at a residential address.

[Pat Germain]

Thanks, Neal. I'll look into that.

[Lee DeRaud]

you'll probably have to get permission from your city council/zoning board too. in most states woodworking qualifies as light industrial activity, so you'll need the proper permits to operate such a business at a residential address.At the level Pat describes, those permits are pretty much a formality: the actual "business" they are regulating is the sale of the items produced. Look at it this way: are the local authorities really going to go door-to-door and tell people they can't operate woodworking tools in their garages?

(When I say "pretty much a formality", I mean it. My city has a form that you sign and return, basically saying that you don't have employees and customers coming to the house and that there is no significant noise/odor evident at the property boundaries. They request a copy of my Schedule C every spring so they can check that I haven't exceeded their $30K net limit for a "hobby business"...as if :p.)

[Pat Germain]

Wow, Lee. If that's all California requires, I shouldn't have any trouble in Colorado. I also have no homeowner's association in my neighborhood. I could probably install a nuclear reactor in my front yard and nobody would notice.

BTW, I was born in Anaheim and grew up in Garden Grove. "Down the street from Disneyland," as I like to say. ;)

[Lee DeRaud]

Wow, Lee. If that's all California requires, I shouldn't have any trouble in Colorado. I also have no homeowner's association in my neighborhood. I could probably install a nuclear reactor in my front yard and nobody would notice.

BTW, I was born in Anaheim and grew up in Garden Grove. "Down the street from Disneyland," as I like to say. ;)Well, you also need the usual state tax license, but that one is free (at least here, dunno about Colorado). Business licenses here are on a city/county basis.

Things would obviously be different if you were talking about contracting for kitchen remodels or manufacturing entertainment centers by the hundreds. But like I said, it's not like they're going to keep you from continuing your existing hobby just because people are buying the output.

[Neal Clayton]

At the level Pat describes, those permits are pretty much a formality: the actual "business" they are regulating is the sale of the items produced. Look at it this way: are the local authorities really going to go door-to-door and tell people they can't operate woodworking tools in their garages?

(When I say "pretty much a formality", I mean it. My city has a form that you sign and return, basically saying that you don't have employees and customers coming to the house and that there is no significant noise/odor evident at the property boundaries. They request a copy of my Schedule C every spring so they can check that I haven't exceeded their $30K net limit for a "hobby business"...as if :p.)

yeah, it's not likely they'll deny the permit, unless the little old lady next door actually goes to the zoning meeting and complains about the racket in the hearing ;). but he might have to wait until the next zoning board meeting for a vote on it.

[Lee DeRaud]

yeah, it's not likely they'll deny the permit, unless the little old lady next door actually goes to the zoning meeting and complains about the racket in the hearing ;). but he might have to wait until the next zoning board meeting for a vote on it.If that little old lady isn't already complaining about the noise from his hobby woodworking, it's pretty unlikely she'll show up for the zoning meeting.

But my main point was (at least in my jurisdiction), there won't even be a zoning meeting for this type of business.

[Joe Pelonio]

In our little city of 44,000, there are over 2,000 home based businesses. Mine is classified as manufacturing, and there are rules like no more than 2 employees, must have off street parking for them and one customer,
but customers are allowed only to pick up. Deliveries are limited to
2 a day. Signage is limited to 1 only maximum 12"x18" on the house.
None of this is enforced except when a complaint is made by a neighbor, but then most of them are away all day at work. I try to do most of my louder work such as cutting up substrates during the day, and I'd guess that only those neighbors that I know and have told are aware of the business being here. Many businesses buy lists of newly established businesses, so after registering you may get plagued with offers of products and services by both mail and telephone.

Our city licensing is done with the state license at $15/year.

[Ray Schafer]

Pat,

I don't think that you need to form an LLC. I think that you can be a sole proprietorship. The reason I say that is that one of the main reasons for forming an LLC is to limit liability so that you don't lose your house and personal assets. That exposure happens when you have an employee (usually). Their actions would only expose the business to a lawsuit. In your case, you will always be responsible for your own actions, and therefore I don't think an LLC would protect you.

It also sounds like you don't really have much in the way of liability exposure, anyway.

I have formed both an S-Corp and an LLC (for my consulting business), and so, although I am a layman, I have some experience with this. Others may have more info, though.

Ray

[Ben Rafael]

You might want to look into costs of going legal. An LLC in California costs about $880 per year. I dont know what it is in colorado. Local business taxes can easily run a few hundred dollars even if you only make $1, many cities have business taxes based on profit, some on gross receipts, some just want money if you exist, you may even have to may business taxes if you have a loss.
Be careful. If you apply for a resale permit in order to forward sales taxes on your sales, many states will notify the local govt and depending on how competent and hungry for money they are the locals will try to collect their cut.

[Neal Clayton]

If that little old lady isn't already complaining about the noise from his hobby woodworking, it's pretty unlikely she'll show up for the zoning meeting.

But my main point was (at least in my jurisdiction), there won't even be a zoning meeting for this type of business.

yes, depends on jurisdiction, in louisiana my stepbrother had to get a zoning board recommendation and a city council vote to sell picture frames from his home shop.

[Ray Schafer]

I agree with Ben ... but my point was that you don't have to form an LLC to be legal. You can be a sole proprietorship or partnership and be "legal." As long as you pay appropriate sales taxes and report your income tax (as well as getting appropriate licenses and registrations), you will be legal.

Here is a clip from a website:
Sole Proprietorship Basics

The sole proprietorship is the simplest legal structure for owning your own business.
A sole proprietorship is a one-person business that is not registered with the state as a corporation or a limited liability company (LLC).
Sole proprietorships are so easy to set up and maintain that you may already own one without knowing it. For instance, if you are a freelance photographer or writer, a craftsperson who takes jobs on a contract basis, a salesperson who receives only commissions, or an independent contractor who isn't on an employer's regular payroll, you are automatically a sole proprietor.
However, even though a sole proprietorship is the simplest of business structures, you shouldn't fall asleep at the wheel. You may have to comply with local registration, business license, or permit laws to make your business legitimate. And you should look sharp when it comes to tending your business, because you are personally responsible for paying both income taxes and business debts.

[Jim O'Dell]

One other thing you should look into is the Insurance aspect. Check with your agent to see what that would do to your household insurance premiums. And it might change if you have customers come to your house for business. My wife teaches piano at our house, and we opted to get an insurance rider in case a student or parent falls and/or gets hurt while on our property. Isn't a great amount of money for the added security. But wouldn't be needed if customers don't visit. Jim.

[Pat Germain]

Thanks for the input, everyone.

I think Colorado taxes are pretty limited compared to California. I have a friend who is a consultant for people starting small businesses. As I recall, he told me there's a $50 fee to form an LLC in Colorado. He suggested going with an LLC in event someone gets a nasty splinter after abusing one of my cutting boards, for example, and tries to sue me. :rolleyes:

As for insurance, my agent happens to be a good friend. We were friends before he became an insurance agent and I was his first customer. I'm confident he'll give me some good advice about keeping everything covered appropriately.

Of course, I'm going to do some research. But I greatly appreciate hearing from you 'Creekers.

[Ben Rafael]

$50 is worth it.
BUT, if your business is an LLC then the LLC will need it's own insurance.
If you are your business you can just get a rider or some other add on to your home policy, which will likely be much cheaper. Like you said, talk to your agent.
Good luck.

[Ray Schafer]

If you are the only person, then anyone who has a problem with a product that you produce will sue you personally. I don't think that an LLC will give you any protection.

[Pat Germain]

Actually, Ray, an LLC does just that. A person can sue the assets of my business, but not me personally. That's leaves my home and all my personal assets off limits.

Similarly, if you had a serious problem with a Proctor & Gamble product, you could sue Proctor & Gamble, but not the CEO. That's because P&G is a corporation.

While it does seem like anyone can sue anybody over anything these days, there are legal limits in place.

[Ray Schafer]

Pat,
I don't think that you are correct.

Any one can sue you personally for any act that you do. What they cannot sue you for in the case of an LLC is the actions of your employees, or the debts of the company. Since probably no one would lend money to the LLC without a personal guarantee, the second point is, in most cases, moot.

Here is an example. If my employee, a repairman, damages a machine that he is repairing while on the job, the customer can sue the employee and the company. My personal assets are protected. If in this case, I am the employee in question who worked on the machine, they can sue both me and the company.

So, when the company consists of only one person, the liability motivation is not very compelling. What is important in that case is to make sure that there is sufficient liability insurance.

As to your example, if the CEO took an action that caused harm to me, I could sue both him and the company, because every individual is responsible for his actions regardless of working for a company at the time. Since in most cases, the action was taken by an innocuous group of people and not a specific individual, there is no individual to sue -- as in the case of the production of a product.

[Lee Schierer]

Be careful what you claim on your tax returns. The IRS has no sense of humor and can get nasty about home business expenses claimed on your tax returns. You also have to be profitable once in a while otherwise it is a hobby!

Lee

[Pat Germain]

Thanks for the warning, Lee. I will seek the advice of my CPA for all tax issues.

And I see what your saying, Ray. But the primary purpose of an LLC is to shield partners from personal liability. If anyone could sue the partners individually anyway, what would be the point of an LLC?

I haven't taken any action yet. If I do, I'll be sure to be up on my legal research. Thanks for the input.

[Ray Schafer]

The purpose is to protect you from the actions of the others in the company -- employees, subcontractors, other partners -- and to protect you from the debts of the company. In a sole proprietorship, if a subcontractor hurts somebody in the course of doing his job, you are personally liable and could lose your personal assets. With an LLC, the company is the employer, not you, and so you are not responsible, the company is. BUT we are all always responsible for our personal actions and that liability cannot be shielded. I know this because of the legal advice I sought when considering what entity I should form. Because I have a consulting company with employees and subcontractors, I need the protection and have an LLC. When I was the sole employee, I ran it as a sole proprietor -- on the advice of my attorney.

[Neal Clayton]

ray is right, the purpose of incorporation is to put a barrier between yourself and your business debt and employees. if you won't have either of those, it's unnecessary.

[Pat Germain]

OK. Now I get it. Thanks.

[AL Ursich]

I have a small business in Rural PA with my nearest neighbor a half a mile away. I had to do the zoning board due to a PA law about starting a business in a building not attached to your house. If I started my business in my basement then in the eyes of Zoning I could do what ever I wanted.

So that left me 2 paths, full blown zoning with handicapped parking and bathroom rules and road access permits with lots and lots of paperwork.... Granted I don't have an issue with the Handicapped and this example is not intended to be negative in any way. I planned to be a One Man Shop and being THAT BIG was never going to be in the plan.

The other path was a Low Impact Zoned Business, and that is what I did. It came with restrictions but VERY Little paperwork. No Show Room, No Employees, No ruining water to not skirt the law and make it a place to live... Allot of that going on in this area.

So I passed the requirements and I am a small Woodworking Craft and Sign Shop. Less than $4K Gross the first year but over $12K so far this year. So there is money to be made in woodworking. Did the Craft thing but not much came of it. Where the money is for me is making wooden V Carved Signs, that is half my work. The other is Sublimation and Fire Department projects like Accountability Tags.

A Web Site is a good thing even a simple one that just shows my projects. Got in as the Sign maker for a 3000 home development from the work seen on my web site.

I have been working 7 days a week until late many nights just trying to keep up. I have a few wood sign orders from Labor Day weekend that I am just now starting. Have been swamped....

Do the signs with the Sears CarveWright unit. I have 3, picking up the last 2 broken as I am a MR. Fix it on the machine being a retired Navy Tech.

I post on the Carvewright forum as digitalwoodshop.

I also diversified my product line too, Laser engraving, Sublimation, Vinyl, CLTT, V Carved Signs and Rotary engraving.

I am now doing 911 address signs and High Intensity Street Signs to meet a local need.

Could be a little TOO much information listing my business income.... But I wanted to show what a Small Shop can do.

Good Luck,

AL

[Pat Germain]

Thanks for sharing, AL. I greatly appreciate it.