Well I need some help.
I'm planning on becoming self-employed next year in January. I know how to work and keep working every day, how to save my receipts, how & where to sell what I make, and I know I can and will make a profit. I have a great book about all the tax stuff, and one about more of the living as a self-employed person. But neither of them say Step 1, 2, 3, What you must do before you are actually self-employed.
And I'm pretty sure there's enough of you on here that are, so I'm asking you! =D
So what are the very first steps to be officially self-employed? Is there some forms I need to fill out (can you link me to where I get them)? How long does it take to get it all set up?
And if you were wondering. I will be mainly making money off my sewn accessories (mostly spiffy fleece hats), and selling them at Japanese animation conventions and online. But I'm also hoping to do a few art fairs/exhibits as well, and see how that goes (well, if I can get into them...). Truth be told, I'd much rather make money off my art then my sewing. But selling art is a bit harder then selling hats(I've been doing it as a hobby for a few years). I still have a lot to learn about selling my art but I'm looking forward to it.
Thanks,
~Hannah P.
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All you really need is a resale tax certificate in the state you're doing the show in so you can collect sales tax. You can have an accountant do your income taxes if you want.
michele norman said:
HI CHRIS It´s been very helpful! Just tell me to start and show in an art fair, what is that you really need, specially if I´m running out of time and it would be in the USA my first sells? Thank you very much for your time Misha
All you really need is a resale tax certificate in the state you're doing the show in so you can collect sales tax. You can have an accountant do your income taxes if you want.
michele norman said:
HI CHRIS It´s been very helpful! Just tell me to start and show in an art fair, what is that you really need, specially if I´m running out of time and it would be in the USA my first sells? Thank you very much for your time Misha
HI CHRIS
It´s been very helpful! Just tell me to start and show in an art fair, what is that you really need, specially if I´m running out of time and it would be in the USA my first sells?
Thank you very much for your time
Misha
Chris Hoyt said:
I have only one comment. The Federal Tax ID number. If you're a sole proprietor, your SSN is your ID number on schedule C. I won't incorporate simply because the tax situation can be difficult if you do shows in other states as I do. Some states have a minimum income tax for corporations (even if that corporation is one person) so even if you did no shows in that state during that year, you still must pay that minimum tax. In VT it's $250. So as long as you're a sole proprietor, all you need for the Feds is your SSN on schedule C.
I have only one comment. The Federal Tax ID number. If you're a sole proprietor, your SSN is your ID number on schedule C.
I won't incorporate simply because the tax situation can be difficult if you do shows in other states as I do. Some states have a minimum income tax for corporations (even if that corporation is one person) so even if you did no shows in that state during that year, you still must pay that minimum tax. In VT it's $250.
So as long as you're a sole proprietor, all you need for the Feds is your SSN on schedule C.
I also live in Michigan. Here is a few of the 1, 2, 3's. Get a DBA (doing business as) set up in Otsego County. It will cost you $10.00 for 5 years. If you do this in person you will walk out with the necessary papers. Then open a checking account. You will need the DBA papers to open this. The bank should be able to get you a Federal tax id number. This is not a Michigan sales tax id number but you need this number to get the sales tax id. To get the sales tax id number you can call Lansing or go on line to get the forms. Just Google "State of Michigan sales tax id". It will be the first one listed.
Now next after you get all of this completed, go to a tax guy or girl. It could be H&R Block or Bob's tax service or whoever you may trust. Sit down with them and they will tell you what you need to do to keep yourself legal tax wise. Yes you'll need to pay taxes but they will tell you how and when. You need the business checking account to keep your business money separate from your personal account.
Now you are self-employed! The State of Michigan along with the feds recognizes you as a business owner aka: self-employed. No other forms to fill out, no other hoops to jump through, just keep good records of what goes out and what comes in and you'll be fine. As far as time frame, this all should take about a month from start to finish. Getting the sales tax id number will eat up most of this time.
I hope this helps. If I think of more I will post them for you.
Another thing to remember is that you will pay more in taxes on your bottom line than if you made the same amount with an employer.
When you work for a company, you pay aout 7 1/2% of your income to the Government in Social Security and Medicare taxes. Your employer is required to pay the same amount in your name. But you are now the employer too. So you'll pay 15% for this. Yes, you can deduct 1/2 of it off your income but you will still pay more out of pocket. Don't be surprised if you pay more in Social Security taxes than income taxes.
Since you asked for the 1-2-3 approach, here are some basics I've learned as a self-employed contractor trying to make more income from my art:
It sounds like you feel financially safe regarding your expected income from your business, which is great. However, don't forget that as a self-employed individual, you need to make quarterly estimated tax payments to the IRS and possibly the state you live in. This can be very difficult to figure out on your own, so I suggest doing some research for a tax accountant familiar with people in your situation.
You said you already have a couple books, but I'm going to recommend one here anyway: "Self-employed Tax Solutions: Quick, Simple, Money-Saving, Audit-Pro..." by June Walker. (amazon:http://tinyurl.com/leqfhu). This book gives you a 1-2-3 approach to a process for managing your tax record keeping. I've adopted many of her techniques in this book, which are easy to follow and implement, and very helpful for your accountant. I've also attended tax workshops in Chicago about this subject and found the workshop leaders telling me exactly what I learned in the book. The author also has a blog. I'm not affiliated with her at all, but found this book and it has become my bible.
Charge expenses to a dedicated credit card and pay it off every month. If possible, use a credit card instead of cash to help in recordkeeping. But, obviously, only do this with the intent and ability to pay the balance each month to avoid fees. Look for a good card that gives you some kind of loyalty via points or cash back. If you have to spend for your business, why not get something back right?
Part of record keeping for me is invoicing. I use an online product called freshbooks.com, made exclusively for small business people. It might be more beneficial for someone who bills a lot based on time rather than final product. There's also a great online invoice tool called blinksale.com, which might be better suited to the needs of one-off invoices for products rather than hourly charges.
As far as legalizing yourself in the eyes of the government... You can go through your state for a "Doing Business As" certificate, granting you exclusive rights to the name you choose to call your business. There are different aspects to this, so check your state's website. For me in Chicago, I had exclusive rights to use a name to represent myself in the entire county I lived in. Nobody else in the county could use the name, but that was it. Otherwise, I just called myself "Albert Ellenich Photography". If your name is part of the business name like that, there's nothing you need to do.
If you decide to incorporate yourself, you can gain liability protection and some tax savings. That's a whole other deal to research. It's an alternative. If you don't, then all your profits go through you as an individual. They are all taxed on your personal tax rate, as opposed to possibly lower taxes if your profits go through an incorporated identity. There are lawyers who specialize in this sort of thing and it's worth finding a few recommendations to speak with one. It's not expensive, and worth it as your business grows.
Congrats on the big step! It's as scary as it is exciting!
Hi Hannah - welcome to this forum. I think through the years you will find it consistently helpful in all aspects of the artists world.
I'm not sure how Michigan handles it, but I registered my business with the State of Wisconsin to get a state tax id. Annual fees for this varies by state but is in the neighborhood of $50.00 each year. You will need that to perform any business transaction and be accepted at art events. You will then have to pay the sales tax you collect to that state as defined by their guidelines. Keep in mind that in most states you will also be able to obtain a tax exempt status for any purchases that you make for items that go back into an item you offer for sale. You will also need art insurance covering at minimum liability. Most art shows will not accept you without a certificate of insurance showing your coverages. Most require 1,000,000 of coverage. This insurance will amount to anywhere from $500 to $1200 annually.
Hannah, I say this as a seasoned artist, and hope you take this with the good intentions I have. I am wishing you great successes in your endeavor and future in the art environment. I will always support efforts of a young artist to pursue their talents. You have likely heard from all that it is extremely difficult to be make a living based entirely on artwork. Most of the 2,000+ members of this forum have a "real job" just to support themselves and their art. The current ecomomy increases greatly that difficulty.
I offer you a piece of advice to consider. Do pursue your goal. Have confidence in yourself and your art. You are making two huge changes in your life and both are very exciting, but challenging. #1: Moving out is a huge step. Everyone I know, including myself, has underestimated the costs of living on their own. The actual figures are frequently two times (or more) of the budgeted figures. #2: Do contact SCORE. They will help you set up a "Business Plan". Without a proper business plan, you are lessening your chances of success. They will also give you the information you are looking for as to an outline of things you need to do to become your own business.
I would suggest that you take the time to deal with the two seperately - which would increase your chances of success greatly. If you can discipline yourself to stay at home another 6 months to a year to set up a well thought out business, the chance of your success will be much higher. This will also give you the opportunity to set aside money needed to attend art shows or leasing space at a gallery (and purchase health insurance and a car). For the art shows, you will need a white tent and various types of display equipment. These expenses easily amount to near $2000 for the basics. Essential in business are the 6 P's..... Proper Planning Prevents Piss Poor Performance.
You will find all on this Forum helpful and ready to encourage you in your endeavors. It's a wonderful exciting life as long as you make smart decisions. Best of Luck to you Hannah!
How do you set up at shows - if you plan on doing fairs and conventions and such without a car? How do you take your products, your display, etc.?
If you are "poor" why get into the art business? We are all poor! You don't see many artists driving porches, or have the most expensive houses. Yes we are pretty happy doing what we like, as some make it look effortless, but there is so much that occurs behind the scenes to earn enough to make one financially satisfied.
How do you see yourself and this business you created 2 years down the line, 5 years?? It might be fun and doable now, but what happens if you find it isn't as fun as you thought. It is too much work and not enough pay? I am not trying to be a party pooper, but if you want to succeed you must look beyond the now and have a plan on how you want to see yourself succeed down the line.
I truely agree SCORE is a great place to start - they have the forms and things and advice to get a business off the ground - sometimes even info on how to get Grants. Just be tough with them, they may not take artists seriously. Good luck!
No there are no forms you fill out. If you have a sales tax # and pay those taxes, you're set with that. Keep good records - quick books or some accounting system that keeps track of income and expenses. As long as you are a sole owner of your company, you only have to fill out a form on your income tax (C) to declare those. Once you start making money - over your expenses - you may want to pay quarterly taxes. Score, a tax person like HR Block, or the small business administration may be able to help.
Replies
I got it! You were very kind!
Chris Hoyt said:
All you really need is a resale tax certificate in the state you're doing the show in so you can collect sales tax. You can have an accountant do your income taxes if you want.
michele norman said:
It´s been very helpful! Just tell me to start and show in an art fair, what is that you really need, specially if I´m running out of time and it would be in the USA my first sells?
Thank you very much for your time
Misha
Chris Hoyt said:
I won't incorporate simply because the tax situation can be difficult if you do shows in other states as I do. Some states have a minimum income tax for corporations (even if that corporation is one person) so even if you did no shows in that state during that year, you still must pay that minimum tax. In VT it's $250.
So as long as you're a sole proprietor, all you need for the Feds is your SSN on schedule C.
I also live in Michigan. Here is a few of the 1, 2, 3's. Get a DBA (doing business as) set up in Otsego County. It will cost you $10.00 for 5 years. If you do this in person you will walk out with the necessary papers. Then open a checking account. You will need the DBA papers to open this. The bank should be able to get you a Federal tax id number. This is not a Michigan sales tax id number but you need this number to get the sales tax id. To get the sales tax id number you can call Lansing or go on line to get the forms. Just Google "State of Michigan sales tax id". It will be the first one listed.
Now next after you get all of this completed, go to a tax guy or girl. It could be H&R Block or Bob's tax service or whoever you may trust. Sit down with them and they will tell you what you need to do to keep yourself legal tax wise. Yes you'll need to pay taxes but they will tell you how and when. You need the business checking account to keep your business money separate from your personal account.
Now you are self-employed! The State of Michigan along with the feds recognizes you as a business owner aka: self-employed. No other forms to fill out, no other hoops to jump through, just keep good records of what goes out and what comes in and you'll be fine. As far as time frame, this all should take about a month from start to finish. Getting the sales tax id number will eat up most of this time.
I hope this helps. If I think of more I will post them for you.
Jim Bellis
When you work for a company, you pay aout 7 1/2% of your income to the Government in Social Security and Medicare taxes. Your employer is required to pay the same amount in your name. But you are now the employer too. So you'll pay 15% for this. Yes, you can deduct 1/2 of it off your income but you will still pay more out of pocket. Don't be surprised if you pay more in Social Security taxes than income taxes.
It sounds like you feel financially safe regarding your expected income from your business, which is great. However, don't forget that as a self-employed individual, you need to make quarterly estimated tax payments to the IRS and possibly the state you live in. This can be very difficult to figure out on your own, so I suggest doing some research for a tax accountant familiar with people in your situation.
You said you already have a couple books, but I'm going to recommend one here anyway: "Self-employed Tax Solutions: Quick, Simple, Money-Saving, Audit-Pro..." by June Walker. (amazon:http://tinyurl.com/leqfhu). This book gives you a 1-2-3 approach to a process for managing your tax record keeping. I've adopted many of her techniques in this book, which are easy to follow and implement, and very helpful for your accountant. I've also attended tax workshops in Chicago about this subject and found the workshop leaders telling me exactly what I learned in the book. The author also has a blog. I'm not affiliated with her at all, but found this book and it has become my bible.
Charge expenses to a dedicated credit card and pay it off every month. If possible, use a credit card instead of cash to help in recordkeeping. But, obviously, only do this with the intent and ability to pay the balance each month to avoid fees. Look for a good card that gives you some kind of loyalty via points or cash back. If you have to spend for your business, why not get something back right?
Part of record keeping for me is invoicing. I use an online product called freshbooks.com, made exclusively for small business people. It might be more beneficial for someone who bills a lot based on time rather than final product. There's also a great online invoice tool called blinksale.com, which might be better suited to the needs of one-off invoices for products rather than hourly charges.
As far as legalizing yourself in the eyes of the government... You can go through your state for a "Doing Business As" certificate, granting you exclusive rights to the name you choose to call your business. There are different aspects to this, so check your state's website. For me in Chicago, I had exclusive rights to use a name to represent myself in the entire county I lived in. Nobody else in the county could use the name, but that was it. Otherwise, I just called myself "Albert Ellenich Photography". If your name is part of the business name like that, there's nothing you need to do.
If you decide to incorporate yourself, you can gain liability protection and some tax savings. That's a whole other deal to research. It's an alternative. If you don't, then all your profits go through you as an individual. They are all taxed on your personal tax rate, as opposed to possibly lower taxes if your profits go through an incorporated identity. There are lawyers who specialize in this sort of thing and it's worth finding a few recommendations to speak with one. It's not expensive, and worth it as your business grows.
Congrats on the big step! It's as scary as it is exciting!
I'm not sure how Michigan handles it, but I registered my business with the State of Wisconsin to get a state tax id. Annual fees for this varies by state but is in the neighborhood of $50.00 each year. You will need that to perform any business transaction and be accepted at art events. You will then have to pay the sales tax you collect to that state as defined by their guidelines. Keep in mind that in most states you will also be able to obtain a tax exempt status for any purchases that you make for items that go back into an item you offer for sale. You will also need art insurance covering at minimum liability. Most art shows will not accept you without a certificate of insurance showing your coverages. Most require 1,000,000 of coverage. This insurance will amount to anywhere from $500 to $1200 annually.
Hannah, I say this as a seasoned artist, and hope you take this with the good intentions I have. I am wishing you great successes in your endeavor and future in the art environment. I will always support efforts of a young artist to pursue their talents. You have likely heard from all that it is extremely difficult to be make a living based entirely on artwork. Most of the 2,000+ members of this forum have a "real job" just to support themselves and their art. The current ecomomy increases greatly that difficulty.
I offer you a piece of advice to consider. Do pursue your goal. Have confidence in yourself and your art. You are making two huge changes in your life and both are very exciting, but challenging. #1: Moving out is a huge step. Everyone I know, including myself, has underestimated the costs of living on their own. The actual figures are frequently two times (or more) of the budgeted figures. #2: Do contact SCORE. They will help you set up a "Business Plan". Without a proper business plan, you are lessening your chances of success. They will also give you the information you are looking for as to an outline of things you need to do to become your own business.
I would suggest that you take the time to deal with the two seperately - which would increase your chances of success greatly. If you can discipline yourself to stay at home another 6 months to a year to set up a well thought out business, the chance of your success will be much higher. This will also give you the opportunity to set aside money needed to attend art shows or leasing space at a gallery (and purchase health insurance and a car). For the art shows, you will need a white tent and various types of display equipment. These expenses easily amount to near $2000 for the basics. Essential in business are the 6 P's..... Proper Planning Prevents Piss Poor Performance.
You will find all on this Forum helpful and ready to encourage you in your endeavors. It's a wonderful exciting life as long as you make smart decisions. Best of Luck to you Hannah!
If you are "poor" why get into the art business? We are all poor! You don't see many artists driving porches, or have the most expensive houses. Yes we are pretty happy doing what we like, as some make it look effortless, but there is so much that occurs behind the scenes to earn enough to make one financially satisfied.
How do you see yourself and this business you created 2 years down the line, 5 years?? It might be fun and doable now, but what happens if you find it isn't as fun as you thought. It is too much work and not enough pay? I am not trying to be a party pooper, but if you want to succeed you must look beyond the now and have a plan on how you want to see yourself succeed down the line.
I truely agree SCORE is a great place to start - they have the forms and things and advice to get a business off the ground - sometimes even info on how to get Grants. Just be tough with them, they may not take artists seriously. Good luck!
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