Well friends, it finally happened... I made a profit!
As I've written before, I recently started salvaging, refinishing, and selling furniture as a hobby. I in no way expect this to bring in a full-time income. My thought was, it's a hobby, and if it can pay for itself, that's a bonus.
Starting a new hobby can be expensive. I didn't think I would throw a lot of money at it, but you buy supplies, make a lot of mistakes, realize you bought the wrong stuff, buy supplies all over again... and that adds up. I've spent over a thousand dollars in supplies, tools, and transportation since beginning this hobby. Which means even though I was selling pieces for a couple hundred each, I was still in the red.
Over a month ago, I got an entire midcentury modern bedroom set from a guy who was moving. It was super scratched up with peeling veneer all over the place, had been drawn on by children, and even had stickers on it. But I knew midcentury modern was popular and it could potentially be a jackpot. (I actually liked the set so much, I thought about keeping it!)
The dresser took the most work and absolutely kicked my butt. The first paint I ordered was a different color in person than it was online, and I decided after the first coat that I didn't like it. I tried to save it without having to order more paint by mixing paints I already had to make a better color. Then, when it was literally at the finish line with the top coat freshly applied... I put some stuff on top of the dresser before it had fully cured. The top coat was ruined. I had to sand it down, which damaged the paint, which meant I needed to paint it all over again.
At the same time, I was trying a new painting technique with a spray gun. The learning curve hit me hard and I wasted all my custom-mixed paint. I bought more paint, and was now on the third color for this dresser. In the end, I figured out how to use the spray gun correctly (it's great), and finally I finished the dresser and could list the whole set for sale.
I got lots of interest and was able to sell the whole set in just a few days after sorting through messages and arranging pick ups. I sold the bed frame to one person for $60, and the dresser, nightstand, and mirror as a bundle to another person for $530. That same weekend, I sold an ottoman for $40 and an armchair with foot stool for $160, adding up to sales of $790 in one weekend!!
This finally put me in the green, and by a couple hundred dollars at that! I pat myself on the back and invested in some better lighting for my photos (lol).
Now here comes the tricky part. When does a hobby become a business? More importantly, when do I have to start paying taxes??
Isaac likes to brag that I started a business, which I always counter with "it's just a hobby, I haven't even made money yet." But now I'm actually profitable, and I'm only going to get more profitable now that the initial hump of startup expenses is out of the way The general guideline that I found online is that if you make more than a $600 profit in a year, your hobby's a business. So I told myself that I wouldn't worry about business paperwork until I made either $1k in revenue or a couple hundred in profit, whichever came first. The reasoning being, if I have $1k in revenue, I need the paperwork proving my expenses and showing that my profit is actually less. And if I have a couple hundred in profit, I'd probably reach $600 within the year. Well, I passed both those milestones last weekend.
Time for a mini business lesson by someone-who-is-not-an-expert. I learned all this just by researching online. When starting a business, people usually decide to be either a "sole proprietor" or an LLC (Limited Liability Company). Sole proprietorship is the most basic way to have a business, and it requires that you are the sole owner and do not hire employees. For financial purposes, your business is the same entity as yourself. You file business expenses and profits on your own personal income taxes. You don't need to do anything fancy to declare yourself a business.
LLC is what I usually hear about when people start a business. Legally, an LLC is a separate entity from its owner(s). The biggest benefit here is that if someone sues your LLC, they can't sue you for your personal assets like your savings or your house. So if you're a construction company or other business that's vulnerable to getting sued for big money, you definitely want an LLC. The taxes are different too, but I won't get into that. If you want to have an LLC, you need to register it with the state, which costs $500 in Massachusetts. You also need to provide yearly reports, which come with an additional $500 fee every year.
I don't even have $1,000 in profit, so I'm not spending that amount of money just to be an LLC. There's also no reason for anyone to sue me. I don't even have a physical store. So I decided to be a sole proprietor. If my profits ever far exceed $1000, I'll think about becoming an LLC.
One more thing. Since a sole proprietorship is the same entity as yourself, that means your business name is your own legal name. If you want to do business under a different name, such as Red Kite Furniture, you need to register a "Doing Business As" (DBA) certificate. This is actually a local thing -- the state doesn't care about this. In my city, a DBA certificate is just $30, and is valid for four years. That, I can pay.
So today, I biked down to town hall, and I registered by business! I now have a business certificate with a fancy gold seal on it, declaring my business to be Red Kite Furniture. :)
I've also applied for a sales tax permit from the state. This allows me to charge and collect sales tax when I sell something. Then, every quarter, I send that money to the state.
Come tax season, I'll have to file a Schedule C with all my business expenses and income. And I'll need to pay self-employment taxes on my business profits. Fun! Until then, I'm keeping detailed records of all my expenses and sales.
From now on, when Isaac tells people I started a business, I guess I'll have to agree 😳 But as long as I enjoy doing it, that's all that matters :)
Comments
Post a Comment