Tips & Techniques from "PattyePoo"
CRAFTING FOR FUN AND PROFIT
or "Can I make a living at this?"
© 1999 Homespun Peddler
A relatively common question is "can I make a living by doing crafts?".
Our answer is "What do you call a living?".
THE CRAFTER'S JOB
Crafting is a traditional home-based business.
In years past the stay-at-home wives would make "pin" money
by doing a variety of domestic jobs from cooking to sewing to
ironing. Some also made money by doing folk art crafts.
Today the art of crafting has become a very popular and fun
activity for both the crafter and the consumer.
Bazzars, craft shows, art festivals, gift shops, and craft
malls every are featuring hand made arts and crafts.
For most crafters the best outlet for their work is the craft show,
craft mall, or a consignment shop.
These outlets have reasonable costs and allow the crafter to
make items in small quantities and sell them with little other costs.
For the person who wants to make an actual "living" as a craft
artist, they have to be willing to make it a real job.
The key seems to be making a limited selection of items,
making them efficiently, and making them in large quantity.
These items are then typically sold wholesale to shops everywhere.
The middle ground is the person who makes relatively large quantities
but sells retail at craft shows. It's still a job and the sales
activity requires traveling to shows every week during the "season".
It also typically requires the artist to have a tent, tables, trailer
and other equipment to make it possible.
This is the simpliest and most traditional way to sell crafts
in small quantites. Each fall most communities will have a
number of these shows sponsored by churches, community centers,
and other organizations.
The craft show is a fund raiser for the sponsor.
They organize the show, publicize it and provide the location.
They make their money by selling booth space.
Depending on the show, the booth can be a few tens of dollars
up to hundreds.
Most craft shows require you to reserve a spot well in advance.
The most popular shows are "juried", which means that you have
to meet certain standards to be accepted.
The really big shows may be difficult to get a spot in so
once you're accepted you try to get in every year from then on.
Craft shows are usually have both small crafters and larger,
professional crafters. If the show it large it will also probably
have a "tax man" wandering around. If you are selling enough
merchandise to attract this person's attention then you should
be sure that you understand sales tax and have the proper licenses.
The Craft Mall is usually a large building that's divided
into stalls or booths or just floor space areas.
You pay a monthly fee for a specific size area and display
your wares there.
Some craft malls have both a fee and they take a percentage
of your sales. Some require that you work a certain number
of hours each month.
The mall typically provides the check out counter and handles
all aspects of the sales. They usually do NOT actively market
your specific items. You set up and maintain your display and
the clerk at the check out simply collects money.
You should carefully evaluate your cost of sales when taking
a booth at a mall. If you look closely you may find that
you'll have to sell a large amount of product to make a profit.
Consignment sales is a good way to sell at a relatively low cost.
Unlike the craft mall, the consignment shop usually has a very low
monthly fee. On the other hand, if the items sell the shop may
take as much as a 33% sales commission.
Many consignment stores work like a traditional retail store.
They display the items, handle the sales and generally treat
your items just like items bought wholesale. The artist
usually just delivers the items and has no other work to do.
The first question that everyone seems to ask is "Do I need a Tax ID?"
PLEASE NOTE: We are not accountants or lawyers.
We can't give legal or tax advice.
You should consult an accountant or lawyer if you are serious
about having a business.
Now, here's the general advice we've been given.
First, there are two numbers which are frequently called "tax ID's". One is federal and one is state.
A federal "tax ID" is similar to a Social Security Number.
It's the government's method of identifing a business for INCOME TAX purposes.
Whether you need one or not depends largely on how you do business
and how large you become. You'll need to report all income on your federal income tax forms. If you have a separate ID for your business, you'll probably file two returns. GET PROFESSIONAL ADVICE.
Be aware that you are required to report income from craft sales on your federal tax form
regardless of how you do business. You may not think it matters, but if you are audited it WILL matter. If you sell on consignment, you may get a form 1099 from the person selling for you. They are required to file that form and face penalties if they don't. If you sell in a craft mall where you're actually just renting space, they may not submit a 1099, but you are still responsible for reporting the income.
SALES TAX LICENSE
The REAL question you must ask is "Do I need a sales tax license".
Most states require that sales tax be charged and paid on purchase
over some set amount.
But you can't just collect tax without the proper credentials.
Most states will issue a sales tax license which is also a form
of business ID. This may be more important than the federal "Tax ID"... you can report your business earnings on your personal income tax return using your social security number... you cannot collect sales tax without a sales tax license.
Note that once you have this license, the state is going to know
who you are and where you live. Be sure that you file the required
reports that go along with sales tax.
Sales tax is serious business as far as the state is concerned.
They want that money!
We have seen state tax representatives interviewing crafters at bazzars and taking names.
DON'T GET CAUGHT!
We heard this annecdote from one business which was audited by the state. The state pulled a "sales tax audit" on the firm. Although the firm had pretty good records, they could not adequately document all of their individual sales.
As a result the auditor pulled piles of hand written receipt copies and calculated the sales tax on every one. Many had minor errors. The auditor calculated that based on these errors, on average, the tax on every sale could have been 3% low. Therefore, they assessed the business 3% of the reported sales tax for the previous five years... plus interest... plus a penalty.
OTHER BUSINESS LICENSES
We might note in passing that there could be other business licenses and fees depending on location. These are often difficult to learn about. Frequently you learn about the requirement by accident when some other shop owner mentions it.
If you are going to hire employees then you need professional
advice to get setup. There are various reporting requirements
and, of course, it's all tax related.
You may also need to carry certain insurance if you have
employees. An accountant can help you figure this out.
Once you get going, most of this becomes simple accounting
but you have to get started right.
PRICING YOUR WORK
We've addressed this mystery in the companion article:
PRICING YOUR WORK.
For more information send
to the Peddler.
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