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Posts: 169
| Here is a question for the guys who sell there baits. When it comes to the Federal Excise Tax, I've been told two ways to figure the amount. 1) Lets say the sale price is $1.00 - you take $1.00 x .6 = $0.60 (construction cost) then divide $0.60 by 1.1 = $0.55 then subtract $0.55 from $0.60 = $0.05 so basically 5 cents on every dollar. 2) simply 10% of the sale price. I was tld this by an IRS agent but I can't remember when to use what formula. What do you guys use (assuming you pay it)? Thanks. |
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Posts: 2378
| I have been looking into this recently also.
I have looked all over the internet, and I have a sister and a brother-in-law that are both CPAs, and I cannot find anything anywhere that states I have to pay excise tax on the goods that I am selling.
Everything I have found states that excise tax applies to "certain goods" like cigarettes, fuel, agricultural goods, and stuff like that. I have found nothing that tells me that fishing lures would qualify.
I could be wrong...anyone know for sure?
Everything I have heard is simply 10% of the sale price though.
Edited by BALDY 5/2/2006 7:31 AM
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Posts: 169
| Unfortunatly I have IRS Publication 510 in front of me & I just pulled this off the IRS web site http://www.irs.gov/publications/p510/index.html
"Sport Fishing Equipment
The tax on sonar devices suitable for finding fish has been repealed, effective after December 31, 2004. The tax on fishing tackle boxes is now 3%, effective beginning January 1, 2005.
A tax of 10% of the sale price is imposed on many articles of sport fishing equipment sold by the manufacturer. This includes any parts or accessories sold on or in connection with the sale of those articles.
Pay this tax with Form 720. No tax deposits are required.
Sport fishing equipment includes all the following items.
Fishing rods and poles (and component parts), fishing reels, fly fishing lines, and other fishing lines not over 130 pounds test, fishing spears, spear guns, and spear tips.
Items of terminal tackle, including leaders, artificial lures, artificial baits, artificial flies, fishing hooks, bobbers, sinkers, snaps, drayles, and swivels (but not including natural bait or any item of terminal tackle designed for use and ordinarily used on fishing lines not described in (1)).
The following items of fishing supplies and accessories: fish stringers, creels, bags, baskets, and other containers designed to hold fish, portable bait containers, fishing vests, landing nets, gaff hooks, fishing hook disgorgers, and dressing for fishing lines and artificial flies.
Fishing tip-ups and tilts.
Fishing rod belts, fishing rodholders, fishing harnesses, fish fighting chairs, fishing outriggers, and fishing downriggers.
See Revenue Ruling 88-52 in Cumulative Bulletin 1988-1 for a more complete description of the items of taxable equipment.
Fishing tackle boxes. The tax on fishing tackle boxes is 3% of the sales price. The tax is paid by the manufacturer, producer, or importer.
Electric outboard boat motors. A tax of 3% of the sale price is imposed on the sale by the manufacturer of electric outboard motors. This includes any parts or accessories sold on or in connection with the sale of those articles.
Certain equipment resale. The tax on the sale of sport fishing equipment is imposed a second time under the following circumstances. If the manufacturer sells a taxable article to any person, the manufacturer is liable for the tax. If the purchaser or any other person then sells it to a person who is related (discussed next) to the manufacturer, that related person is liable for a second tax on any subsequent sale of the article. The second tax, however, is not imposed if the constructive sale price rules under section 4216(b) of the Internal Revenue Code apply to the sale by the manufacturer.
If the second tax is imposed, a credit for tax previously paid by the manufacturer is available provided the related person can document the tax paid. The documentation requirement is generally satisfied only through submission of copies of actual records of the person that previously paid the tax.
Related person. For the tax on sport fishing equipment, a person is a related person of the manufacturer if that person and the manufacturer have a relationship described in section 465(b)(3)(C) of the Internal Revenue Code." |
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Posts: 4266
| I'm on the phone with the IRS right now. Seems this falls under the heading of "complex issues."
The first guy that I talked to said that the excise taxes are normally passed along to the consumer in the retail price.
We want you to work. We want you to be productive. Give us some of it.
I called the Dept of Vocational Rehabilitation and talked to a lady that I've been working with, and asked her if I'm supposed to raise the price of my lures to cover the tax? She said either that or cut into your profits. What profits?
Screw it. It's not worth it. You have to charge $0 to cover the taxes and make a profit, and then they take more off of the top and more out of your income.
I'm moving to Canada. |
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Posts: 2378
| Crap, I guess I should be paying then?
I have also noticed on some of the goods that I have been buying that there is a line item on the invoice titled 10% Federal Excise Tax. But on every invoice so far that line item has been $0. Why arent they charging me? I find it hard to believe that they are cutting into their profits to give me a better deal. |
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Posts: 169
| You might have a Form 637 (FET Exemption) on file with your suppliers. I have one. It means you don't have to pay an extra 10% with Hagen's or LakeLand & you get a 10% discount at Moore's. If you buy from Stamina they have the 10% worked into the price and they won't give you a discount even if you are exempt. |
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Posts: 4266
| I talked to the IRS for a while.
Seems this falls under "complex issues" and form 535, business expenses and not for profit activities.
Either jack your prices 10% to cover the tax, or don't have a business, have a "hobby' where you can't write off any losses.
I'm meeting with the DVR and a small business specialist next week, and I'll tell them about my conversation with the IRS. Seems if you take any money that you get and put it right back into the hobby and make no income, it's OK. It's been my contention that I can't make any money doing this any way, because you can't get paid for your time.
If I had a green card, I'd be exempt, because it would be "work that nobody else wants to do."
I love this country,,,,the guy who makes the bodies pays 10%, the guys that make the paint, the screw eyes, the hooks, all pay 10%. Because I assemble those parts, I should pay 10% too after it's been paid already.
Get ready for $50 lures. |
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Posts: 2037
Location: lansing, il | looks like it applies to leaders too..how neat!!! ya know as soon as you do somthin to put a little bit in your pocket they are always there to take it right back out! i wonder if the meth and crack dealers have a special form they have to fill out? i think ill go that route instead of leaders! |
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| Pay it. Charge it.
I know of one manufacturer that didn't pay it and the IRS went back through all his sales and ended up paying over 20K. The lure business just isn't worth that headache.
I attended the 2005 ICAST show in Vegas and they had the IRS specialist on the tax. I have his number somewhere and will try to find it.... |
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Posts: 4266
| From now on it will be ...$25+ $2.50 excise tax+$5 shipping...minus parts and labor=$0
When I talk to the small business guy next week, I'll take notes.
That "business not for profit" sounds like what I'm doing anyway.
We'll have a "Pewaukee Tea Party" and all throw our lures in the lake, then have a contest and charge guys $25 a dip to jump in and find them. |
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| sell on ebay for now.. i dn't ever deal with taxes there.
surely they could go back and find it on me, but ...hey, u can't get blood from a stone. |
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| Unfortunately Yeti they can bleed a stone I saw it happen, my only advice is get a good accountant and pay the tax, I use to work for a guy that had his accountant mess up 3 years in a row $25,000.00, the interest and penalties were the killer from the 3rd year back, he was a broken man and they still bled him out not a pretty site. |
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| oh i know.
they'll get you anyway they can
and then, raise the tax on diapers and gasoline during!
good luck guys. |
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Posts: 4266
| Had a talk with an accountant who just so happens to be a customer. Found out many interesting things.
Do you calim your bodies, hardware, paint, clearcoat, rent for the structure that you make your lures in on your income tax? No?
Then you are a hobbyist, or like I said before, a business not for profit. Does most of what you make go right back into more of what I listed before? You could qualify as a business not for profit.
Now, do you have a business set up with a Tax ID? Keep books and write everything off, including losses that you try to recoup from the Gov't? You better watch your ass and have a degree in financing and accounting and keep receits on everything....including lunch every day. But you can't get paid for your time. That's one of those "complex issues".
Best scenario....Your wife opens a business...Bitch's Baits....she hires you as a lure assembler and painter and pays you by the hour. You know you're not making money, so you write off business losses. Well, if you don't show a profit in 2 years (I think that's the number he used), you can't claim any more losses with the Gov't., but still must pay excise tax and State and local taxes where applicable.
So Steve....I think that we should all work for tacklefirst and only sell through you and pick up a little on the side. Having my wife as my boss would definitely lead to an obituary for one of us.
Oh, and if you have a web site and take paypal????? You better have your ducks in a row. They watch you on a regular basis and will be wanting to see your books someday.
Screw this place. You try to do something to make a couple of bucks and make good lures, and Uncle Sam jumps up to kick your ass. I think Uncle Sam belongs to PETA.
PS...if you repair or repaint lures, you are exempt because you are only providing a service. So, you guys all go buy lure bodies and hardware and ask me to repair them for you.....HEHEHEHEHE
Edited by Beaver 5/3/2006 6:29 AM
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Posts: 2378
| Prices just went up... 
Hate to do it, but we cant take this off our bottom line and still have this whole thing be worth it.
Edited by BALDY 5/3/2006 7:00 AM
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Posts: 4266
| Ditto Baldy.
I figured out what I made "per lure", after figuring in everything from paint,bodies, screweyes,hooks,stick-on eyes,topcoat.....not overhead, time or aything else.....I make approximately $2 per lure. If I don't charge to cover the excise tax, I'm losing money. Besides, I'm making about 75 cents per hour when I figure in the time of drilling, weighting, adding hardware, applying paint etc.
Things have to change, or I'll be making a quick exit from the lure-making hobby.
I'll be the guy at the boat landing with the trench coat lined with lures. It would be easier making a living selling drugs.
Fed-up Beaver
Edited by Beaver 5/3/2006 7:23 AM
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Posts: 2384
Location: On the X that marks the mucky spot |
Get ready for $50 lures.
Join the club, I've been there for years 
Seriously, it isn't worth your time if you don't get compensated for it. If Joe Musky Guy had any clue what it takes to make these things in a quality manner, and stand behide your work they'd poop their pants. I figure I've got around 2 hours into each bait when it's all said and done. When you take my wage from my real job, what I scrape together making baits is stupid, even @ $40/each. |
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Posts: 2037
Location: lansing, il | ok im the wolds biggest dummy when it comes to tax time.....if im understanding this correct i would owe the govt 10% over and above any taxes i would already pay from running my business no matter what. even if i was able to show a loss on paper? so i would be paying 10% right off the top for every pkg of leaders i sell. correct? man try to do somthin legit and they grab your balls everytime! does anyone have blueprints for setting up a nice basement meth lab they can share?? |
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Posts: 2037
Location: lansing, il |
Edited by muskihntr 5/3/2006 7:48 AM
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Posts: 2378
| yep, Uncle Sam is entitled to 10% of EVERY sale regardless of your profit or loss |
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Posts: 2037
Location: lansing, il | not that it matters but does anyone know why they hit the fishing industry with this?? 10% is quite a bit when some guys end up up only profiting not a whole lot more than that. did they just decide fishermen are turds or what? i could understand if it was 10% of the profit margin but geez. gander guide if you read this i think this would be a good post for a picture of uncle sam kciking a dog in the sack!! |
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Posts: 2378
| from what i understand, it is not just the fishing industry.
and they hit us because they can! |
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Posts: 169
| just for the record, it wasn't my intention to have prices raised or have people quit doing what they like to do. I just assumed everyone had the tax worked into the final price.
Another kick in the sack is, if you already pay the tax when you buy supplies and can't prove it to the IRS & have to pay it again when you sell your lure. Jusy to recap, if you don't have an approved FORM 637, you probably are already paying 10% extra on supplies. This is definetly the most expensive "hobby" I've every had. |
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Posts: 2384
Location: On the X that marks the mucky spot | The excise tax money goes to grants that organizations and state fisheries organizations can apply for. I know for a fact that the MN DNR applies and receives funds from this.
Now we can argue till the cows come home if the money is well spent and if it efficently distributes the funds. |
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| 10% is only charged once, and that is to the consumer. When you buy components or lures, you should receive an exemption if you're going to resell them. When you sell, you only charge the 10% to end users. If you sell wholesale, all you need is an exemption certificate from the purchaser. Then it's their responsibility to charge it.
Thanks for finally mentioning that the 10% goes to fish and game. It's a dedicated tax. And everyone has to pay it. Those two things should make it easier to pay. But it's still a bitch. I had a similar reaction when I learned about it. Luckily I learned about it early enough so that the check I had to write for baits I'd already sold didn't break me.
It's really not all that complicated once you understand it. Send in your check every three months -- it's part of doing business.
Let me also mention that a business does not become a hobby simply because you don't make any money. If you're going to try to cheat the system ... well, just don't. You don't cheat on your personal taxes, do you?
John |
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Posts: 4266
| I'm glad that I charge everything on the same credit card.
Computer crashed, so I lost record of all of my '04, '05 transactions.......in fact, there weren't any. All lures that I made, I donated. Lure painting and repairing doesn't count because you are only providing a service.
Does anybody know a small business expert?
We could have a chat and he could pick up some clients.
Beav |
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| Beav,
Drop me a note at [email protected] if you would like a referral and more info.
John |
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Posts: 2378
| John23 - 5/3/2006 10:12 AM
10% is only charged once, and that is to the consumer. When you buy components or lures, you should receive an exemption if you're going to resell them. When you sell, you only charge the 10% to end users. If you sell wholesale, all you need is an exemption certificate from the purchaser. Then it's their responsibility to charge it.
Thanks for finally mentioning that the 10% goes to fish and game. It's a dedicated tax. And everyone has to pay it. Those two things should make it easier to pay. But it's still a bitch. I had a similar reaction when I learned about it. Luckily I learned about it early enough so that the check I had to write for baits I'd already sold didn't break me.
It's really not all that complicated once you understand it. Send in your check every three months -- it's part of doing business.
Let me also mention that a business does not become a hobby simply because you don't make any money. If you're going to try to cheat the system ... well, just don't. You don't cheat on your personal taxes, do you?
John
so if i only sell to retailers I dont have to pay excise tax as long as i have the exemption form filled out by the retailer? |
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Posts: 2378
| john23 you have mail |
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Posts: 941
Location: Freedom, WI | If you make and sell it you pay 10% of what you sell it for to the IRS. it makes no difference if you sell it to a wholesaler or not. the maker has to pay it. if you export it you do not pay it. Also it makes no difference if are small time or not if they catch you you pay. It is called the 720 tax, it sucks but I still pay it. |
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Posts: 4266
| Oh yeah....I just spent 2 hours talking to several people at the IRS, and the answer is the same...you pay it.
You may be a "business not for profit", but then you can't write off any of your other expenses.
You don't pay if you export......is that why you can only buy HR's in Canada?
Go to the IRS site and look at all of the puplications. Ones about small businesses. Ones about self-employment. Ones about excise taxes and Form 720 and how to fill it out and report your sellings. And you better have good records.
I'm meeting with the Small Business Administration and an outfit called SCORE, that is a group of retired businessmen who help self-employed and small businessmen get started.
Because I'm working through the DVR, they offer courses that they will pay for, and might even have start-up money if I qualify and can prove that I can show a profit in 2 years.......who the hell can do that?
I think that I'm better off syaing "Screw it", and sell a couple lures on e-bay every month.
Or maybe I'll have a big rummage sale once a year? |
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| I misstated the excise tax in my previous post. I refreshed my memory. It is a manufacturer's tax, meaning that once the item is done being manufactured and is ready for final use, it is taxable. So if you're selling to a retailer, you (the manufacturer) are liable for the tax (not the retailer). But if you are selling to someone for additional manufacture (lure blanks would be a good example) you do not have to withhold the tax assuming (but only if) they have an exemption certificate. So that's that. Sorry for the confusion. I'll check my email now (yikes).
John |
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Posts: 4266
| One part that I found interesting is that you pay quarterly....regardless. The way that I see it, I should only have sales in one quarter. Jan- April should see the bulk of sales. Do I divide all of the taxes and only pay a fourth, or do they expect me to pay regardless?
Do you have to hire somebody to handle all of this for you?
I know that the IRS told me that I had 3 years to turn a profit. What if I don't?
Who knows enough about this to have a sit down, or do you hire an atty.? And an accountant.
Amazing how a hobby isn't a hobby any more. Where do they draw the line?
If I'm a business, can I deduct body costs, all hardware, paint, Envirotex and the room that I built to paint in against any profits?
So what happens when I don't turn a profit, but still want to make lures as a "not for profit" enterprise?
I'll wait for a swap after The Milwaukee Show and sell everything there.
How do you guys with web sites handle all of this. Is shipping figured in with the price, or is that a write-off.
I guess I have a lot to learn.
Don't think that I'll paint any more this year unless its repairs or if people send blanks, then I don't have to worry about taxes.
Edited by Beaver 5/3/2006 6:07 PM
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| If you don't make a profit after 3 years you become a hobby again and lose any tax benefits... (But still have to pay taxes) Shoot me.
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Posts: 1207
Location: Pigeon Forge TN. | My two posts were pulled. I said something wrong? It wasn't ment to be, Just joking around like some others.
Beav,
A good CPA could help you figuer out what you need to do.
Edited by Stan Durst 1 5/3/2006 7:15 PM
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| Stan
For your 2 posts check the thread - Ready for 10% price hike across the board?... its still there. These 2 threads have got a little confusing, out to be 1 thread |
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Posts: 1207
Location: Pigeon Forge TN. | Thanks pb,
Your right, I was confused. Getting old is sure no fun. |
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Posts: 1504
Location: Oregon | I have known for a long time that I make very little money at this business. You can clearly see now why so many baits (more all the time) are made overseas. By the time we build a good bait we have easily 1.5 hours into them and after taxes, materials, and our time we are lucky to be earning minimum wage. I think John is right, just pay the taxes quarterly and be done with it. If you can't make it after taxes, quit.
jed v. |
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Posts: 2037
Location: lansing, il | ok how bout making the product free but charge x amount for shipping and handling:) in all seriousness i think the best thing to do is suck it up and pay it!! figure it into the cost of the product, unfortunetly it has to be passed along to the consumer as well.
Edited by muskihntr 5/3/2006 11:03 PM
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Federal Excise Tax