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The Business of Knife Making A forum dedicated to all aspects of running, managing and legal operational issues relating to the custom knife making and custom knife selling industry.

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  #16  
Old 07-26-2003, 08:54 AM
Kelly Carlson Kelly Carlson is offline
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I may have missed the answer to the initial question in this thread - the question asked how much could one make from the sale of knives before its considered a taxable business.
Profits from a hobby are taxable as income, regardless of amount, while losses from a hobby are not deductible.
As a business, profits are taxable and losses are deductible, but there is usually an end to the number of years for which losses can be taken - at least for small, part-time businesses.
As a general guideline, the IRS will tend to look at a small business, particularly a home business, as a hobby (with non-deductible losses) if losses are reported for more than two out of three years. There are many exceptions - this is just a guideline.
As mentioned earlier, if in doubt, get advice from an accountant on tax issues, and an attorney on liability issues.


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  #17  
Old 07-26-2003, 11:32 AM
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Terry Primos Terry Primos is offline
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Location: Shreveport, Louisiana
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Here in Louisiana anything over $1 above the cost of materials is taxable if your work is a hobby and you are selling that work. Nothing is deductible for a hobby.

However, as a business there are a lot of breaks. They will vary from state to state. Some of the deductible things for me are:
  • Steel, handle materials, bonding agents, pins, bolts, etc. Oddly enough, I have been told that perishable things like grinding belts are not deductible; only things that are actually shipped to the customer.
  • My equipment. I had two options here. One way I get a small deduction with no strings attached. The other option was to get a big break where I'd owe no taxes at all. But with that one I would have to guarantee that the business would be active for at least 7 years. If 5 years into the business something occurred that caused me to shut the business down I would owe 5 years back taxes. I went with the smaller break.
  • My computer. When my computer started going on the fritz this year, I just went and bought another one. I figured why not? I could fiddle with the old one and try to get it fixed, but I can deduct a brand new one.
  • My ISP (provider for my connection to the Internet) and my account at Atlanta Virtual (the host for my website).
  • The software I use to create, modify, and update my website.
  • My digital camera, which is used to photograph my knives.
  • My photo editing software.
  • The software I use to keep my records, balance the books, etc.
  • All business related long distance phone calls. I am not using a cell phone at this time, but I believe that is deductible as well, as long as the cell phone is for the business.
  • All business related travel including shows, classes or Hammer-ins at the ABS school, monthly knifemaker meetings, going to the post office to ship the knives, etc. Here, they go by mileage, not by the amount of gas purchased. The first year I saved all gas receipts, but now I just post the mileage, date, and where I traveled, in a little notebook in my truck.
  • All my subscriptions to knife related magazines.
  • The services of my accountant.

I'm sure there's something I'm missing here, but you get the idea.

Regarding the zoning thing, a lot of it has to do with how you present yourself and the wording you use when you go to the town clerks office to set up your business. I did not go up there in my nasty shop clothes. I looked like a business man.

I never used the words manufacture, produce, or knives. When asked what type of business this was, I said that it was a custom "cutlery" business.

Before receiving my ####### I received a call from a city rep who wanted to come by and check out my office space and parking arrangements. He was on a cell phone and on his way to my house.

I told him he was more than welcome, but that this was primarily an Internet run business and that it was not like a store where customers would park and look at products on a shelf or a display case.

I also mentioned that the only business conducted away from the phone or computer would when I traveled to shows. That satisfied him completely. He said that he was just going to head back to his office and send me my #######. It all worked out quite painlessly.

Everything I said was absolutely true. I just chose my words carefully and only provided enough information to get the job done.

[ Edited to add more things to the list ]


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  #18  
Old 07-26-2003, 12:45 PM
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Les Robertson Les Robertson is offline
 
Join Date: Jun 2002
Location: Georgia
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MP,

Legal and tax advise is exactly what a new business needs. You don't go to jail or pay fines, penalties and interest for picking the wrong logo.

You do however pay these things if you make a bad decision regarding Legal and Tax issues.

Guys if you are going to be a professional. Then hire professionals.

Remember, the advice you get for free is worth every penny you paid for it.


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  #19  
Old 07-26-2003, 01:45 PM
Kelly Carlson Kelly Carlson is offline
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An excellent summary, Terry. Thanks.
I do think that grinding belts are deductible as expendable supplies, and that this might merit further discussion with your tax advisor.


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  #20  
Old 07-26-2003, 01:58 PM
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Les Robertson Les Robertson is offline
 
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Location: Georgia
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Hi Kelly,

Yes, grinding belts are deductable (Durable Expendable). Anything you use to make a knife, sell a knife, ship a knife, etc. is deductabile.

Just remember to keep those receipts!


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