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| This is for those of you who have, or are thinking of starting your own business, or at least selling off some of your lures.
What kind of costs are associated with this process above and beyond just your normal income taxes, Ive seen a Federal Exise Tax talked about as well. Just curious so that I kind of have an idea of what Im getting into. My thinking is it isnt worth it if you have to make 1,500 baits a year just to break even.
Obviously my goals are not to become rich, I understand that will never happen.
Thanks |
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Posts: 2089
| I would have a commercial insurance policy as well. General liability and finished products liability.The cost is fairly minimal and it just may save your house. Steve |
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Posts: 786
Location: Minnesota | Hey Guest.
I could write a book! LOL
Fully understand the following:
- How to start a small business in your state. Call your state gov and they may have a book)
- I would go with an LLC with pass though taxes (goes on your individual)
- Understand FET taxes and visit with an IRS agent so you do it right!
- Get an FIN and state tax number (online forms or call the IRS and the state)
- Get a FET (637 form) number (online forms)
- Get insurance (not to bad $$$ wise for a few million coverage)
- I have a lawyer on hand for any questions. My lawyer is an IP/trademark lawyer but his office also has guys who know about taxes. ($250-$400/hr)
- If this is being run out of your home make sure you talk to your home insurance agent for any concerns.
- 1500 baits should be easy but you may want about $10k in cash on hand to start up.
- Start SLOW! Don't make 500 baits and then try to sell them. Make 20-30 and see how they go. Get them into the hands of some good guys to give you honest feedback and then you can modify. I thought mine were good to go but I changed my baits a lot in the early days and had a lot of firewood to prove it.
- Use top of the line terminal tackle. Hard core muskie guys know what they like and if they like your bait they will buy 10, 20, 30 ???
Can I ask what state you will be in? If MN I have the link/pdf I can post for you on starting a small business in MN. Helped me a lot. Also, if you want to set up an LLC NOLO.com has a program that is great for setting up the paperwork for you and printing everything off. 1 hour and $150 and you are a company! At the end of the day make sure all your ducks are in a row and your are legit!!! If your "house" is dirty and a competitor knows about it they may play dirty. I have already been attacked by a few in this area and if my records were not in line I would have been fined by the IRS. I for one keep a tight ship with good records. I have seen some stories here of guys running a basement bait company and 10 years later they got busted for a LOT of money by not reporting or doing the wrong things for owning a business. The US gov does not care if you make 10 or 1000000 baits. If you are making them for profit they want to know about it. LMAO, if I knew what I know now years ago I don't think I would be in this lure business. And know, if you run a tight ship you can make money. If you don't understand your COGS, shipping, other costs of doing business (legal, FET, IRS, insurance, etc) you will loss your ars in no time even with 1500 baits/year. I am just now after a few years breaking even. Make sure you have time too. My Grunts used to take me 20 hours every Sat. and Sun. for months. I have kids now so my ship got tighter and now I spend maybe 5 hours a weekend but get the same amount of work done in that time. Efficiency is the name of the game if you are in this for money. For me it is 50% making baits and dealing with lures and the other 50% shipping, website, taxes, customers, etc. So if you can make 4 baits per hour and make $5 per bait that is $20/hour but when you account for the other time you really only made $10 per hour.... Something to think about. I have a spread sheet I tracked all my time for months and it looked bad to me when I did the math but at the beginning I thought I was going to make $40 per hour for my work. LMAO at myself for wishful thinking. Like I said, I am just now breaking even. The killer is that FET tax. They get paid if you make money or loss money on a bait. The FET gets paid on gross sales not your profit margin. Really cuts into your profits and no easy way around it either. You just pay it.
Good luck!
James
owner: http://www.gruntmuskielures.com
Edited by Grunt Lures 10/18/2007 9:33 AM
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Posts: 910
Location: Hastings, mn, 55033 | All that for basement bait building??? |
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| Wow, Im a little overwhelmed. That seems like alot of intitial investment to just get going. Right now Id just like to focus on a few baits, get them in some local shops and maybe someday ramp it up from there. My goal this next year was about 100 baits but the way it is sounding, id loose way too much money to even attempt it. So you pay the FET tax on what you sell, regardless of what is put into the lure (as this would be considered a write off - cost of making the product).
Is there a way to just make the baits, sell them to a shop, and declare that profit on your personal income taxes (as additional income) without having to worry about going to prision for 35 years? Im guessing you would have to declare all the profit (without taking out the cost of making the bait).....
Oh, and I am in the State of Wisconsin
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Posts: 162
Location: Bemidji, MN | If you are going to sell through shops, you BETTER be filing the FET. Most suppliers will not sell to you at wholesale with out at least a state tax ID#. A 637 helps you get back some of the $$ paid into the FET, but is not 100% necessary. I file my income through my personal taxes, but I do have a federal tax ID# (necessary for FET). |
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| So can you get by with just filing the FET and getting a Tax ID#?? Are you able to re-coup some of the cost of making a bait(components) vs. the actual sold price of the bait (gross). Say you sell 10 baits at $20/each, I assume you have to declare $200 profit, even though the cost to make the baits was $100 and you profited $100.
Thanks for the insight. You can learn so much more through this forum than trying to get anything from a government website...... |
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Posts: 941
Location: Freedom, WI | The FET is 10% of gross sales they do not care what the costs are or if you payed sales tax on the componets. You sell for $20 you pay $2. If the IRS catchs you selling a lure and not paying FET it is bad news no matter how small you are. |
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| So when do you file or pay FET? Is it something you pay at the end of the year when you do your taxes? Is it something that can be paid when you do your personal income taxes? |
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Posts: 941
Location: Freedom, WI | 4 times a year. once you file they send it to you. You need your WI tax number and you have to get the bait shop to fill out paper work for that also as they collect when they sell. |
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Posts: 1106
Location: Muskegon Michigan | Its not a big deal really. Here is how I did it in Michigan. First 10.00 at the county court house establishing a D.B.A. (doing business as)You need to do this to get your FEIN number. The court house will send you to the state tax office. Now if you are selling baits in your state you will need a sales tax license. They send it every year with 4 quarters . Income is regular for me. I dont pay myself a salary . I just pay income tax on what is left after deductions .
FET. 10 % of the sale price of the item imported or manufactured. This is payed to the Federal Government by quarter and is due on all lures you sell in the united states. You can pass it on to the retailer or pay it your self. I choose the latter. Now I sell most of my baits in Canada so I dont pay FET On those sales. Its good to export eh? You do not have to pay FET on any lures you manufacture and export out of the United States. Its best to sell wholesale and have the distributer pay it to you on the wholesale price and you send it in.
Start up for me was a couple machines, several great Ideas and some painting equipment. You will find that there is not a lot of stuff out there for this business. I designed and built all of my own stuff from my paint booth to my tumbling system. We are doing real well in sales and are continuing to add new products. Im loving it. Im my own boss and I control the quality that is the most important part of building Musky Lures. Your quality has to be top priority. Im making about 35/40 thousand per year in gross sales and dont have 5,000 invested. Im not getting rich but hey Im doing better than I was making 12 bucks an hour working in a shop for somone else. on 40 grand Im clearing 32 maybe This year we hit 28,000.00 at the halfway point. The third quarter slowed a bit but its looking like we will have a great 4th quarter. You can call me if you want to talk about it. 231-733-9324 I build websites too. I built mine and a couple for other places. Im off on vacation for the next 6 days Musky fishing. Its my third vbacation this year. Gotta love it. Kingfisher( Mike King)
Edited by Kingfisher 10/18/2007 9:25 PM
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Posts: 4053
Location: Land of the Musky | Another fact about FET for some like me selling on eBay is not so nice. So I sell baits on eBay. About 1 out of 5 sell at or below my COGS. The IRS does not care, they still want their FET money so not only did I loss some on my auction but at the end of hte day I still owe the IRS. LOL! I thought I would do better on the eBay but that FET hit alone has me close to not selling anymore. My SuperDs and Booty Tails are taking the hits the most. I doubt I will make any more of those and move along to higher margin baits just so I can overcome the FET/eBay finacial hurdles. I think if you stay small and make a good product that gets a hard core following you should do well. If your baits are good enough to attract some collectors you will do just fine. Just make sure you make a quality bait that looks great. PS-King is right on the exports. That right now saves me. About 25% of my lures are shipped out to Canada or the EU and some to AU. Those sales are exempt form the FET. My IRS guy is great to talk with. You should call your local IRS/FET guy and just run some things by him and he will tell you straight out how to do it and how to actually pay less for certain situations. Get a good CPA too. May cost you $500 a year but they will save you $1000 or more than you doing your taxes on TurboTax or something.
Good luck. |
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Posts: 119
| castmaster - 10/17/2007 12:03 PM
All that for basement bait building???
LOL!  |
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| Do you guys get any tax write offs like when you go on fishing trips you say your testing baits or something to get the money from the trip back. Or can you write off a boat or truck to use for testing baits? Just curious of the perks. |
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Posts: 1504
Location: Oregon | I find the FET the most disappointing part of selling lures. You pay taxes on the wood, the hooks, the paint, the clearcoat, and all your tools and then you have to pay a FET? And 10% is quite high when you consider how little we basement guys make on the lures to begin with. If you really work at it you can make 10k in a year and then you have to give back 3k of it?
As for you guest, I would suggest you start very slow, build 5 lures the best you can and put them up for sale on Ebay. You don't need a license to do this, just start slow and see how it goes. If you start to sell baits on a regular basis then you will need to follow through with all applicable state, federal, and local licensing, permits, and taxes.
Jed V.
Edited by RiverMan 1/26/2008 1:43 PM
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Posts: 4053
Location: Land of the Musky | Good luck! I will show a $40k loss in 2007 and I am still running out of my basement and garage. Start small, do things right, stay REAL lean but make sure you get insurance, FET number, etc, and have some extra cash on hand before you start. Good thing to have friends with lots of tallents aroudn you too.
RiverMan is right. FET KILLS you!!! When you make under 20% margin adn then you get to shell out the FET it just crushes you Q by Q. Make sure you like doing this. Last year I got out fishing under 5 times becasue I needed time to deal with business issues. If you like fishing don't start a lure company
James |
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Posts: 1106
Location: Muskegon Michigan | Hmmm, fet is not killing me. I have it figured into the cost of the lure right from the start. My profits are after costs and taxes. I write off every thing I can get away with. Filing jointly with my wife is great as she gets the crap taxed out of her and I show a loss and we even get her taxes back  . My boat is a write off, all lures and rods,reels,line gas for trips everything even Our Van which pulls the boat has a depreciation scedule. Soon I will be into a new building and with that wrote off over 5 years in an acceleated plan wil get us a ton of deduction. You invest that money not spend it eh??. It is smart to be deversified as well. We build Planer Boards, Spoons, Plugs, run a guide service and sell Bichon Puppies all under one business. It works for me. Kingfisher |
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Posts: 4053
Location: Land of the Musky | King, I need your tax guy If/when I go full time with this gig I will build myself a heated pole barn for "storage" and write that off along with my four wheeler to haul lures up to the house with. I like the boat idea too. I heard you can get burned on that though. I did write off some equipment though this year. About $2500 for stuff I needed to test my products. That part is nice. I have to buy some video equipment too that will run me about $3k in 2008. I want some cool underwater camera equipment adn video recording stuff. Can't wait to get that. With it I may need an extra laptop for my boat. King, do you write off milage? That is what I do and not my truck itself as I use it for travel to my real job that pays my bills. Can I write off the bon-bons my wife eats while she does work/yaps at me from the couch? LOL I also diversify into various kinds of lures and I have a cosmetic/dieteray supps company (I know, LOL), and I just started a hunting supply LLC/company a few months ago. Oh, I also have a 9-5 M-F full time job. All this so I can retire at 80
I tried to email you a few weeks ago. Your email came back undeliverable. Wanted to send you a few lures for your nephew for when he gets home. Small gesture to say thank you to him for the service to his country, family, friends and people like my family he does not know but still puts his life on the line for.
James |
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Starting a Small Business