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Posts: 114
Location: Central Wisconsin | This is my first post, but have been a fan of the site for a while now. It sounds like there is a lot of knowledge out there so I'll throw out my first question. I pretty much build for my own use and give a lot of lures away to freinds. I was approached by a local bait and tackle shop. He wants me to build some lures for his shop to see if there is a market for musky lures in our area. Any tips / rules I need to be aware of to make it legal for myself and the shop owner. I have read a lot about the IRS 637 and the 720 tax form in archived posts but still have a lot of questions. I'm not looking to become the next huge bait builder, but it would be nice to show my wife that my illness can pay the fuel bill for my next fishing trip. Any permits, licenses, etc I may need to look at. Thank in advance |
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Posts: 619
Location: Verona, WI | Having just gone through this, my advice is to go talk to a tax accountant. They can walk you through all of the forms, sales tax issues, etc.
Shane |
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Posts: 114
Location: Central Wisconsin | Shane -
What was the biggest hurdle, just wondering if selling a few baits is worth the hassle. Sorry, not trying to pry |
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Posts: 278
Location: WV | I am faced with this question also. The difference for me is that I own my own small musky tackle shop and already pay sales tax. My concern is the tax issue with making my lures and selling them in my store. |
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| If you are selling a few lures, the IRS probably won't notice or care.
However, if you start to get bigger, you probably want to turn it into a business (e.g. incorporate, file some papers, and claim income/loss). Keep in mind, you can deduct legitimate business expenses: like buying a boat/equipment/tools, and traveling to Canada to "test" your lures. 
Even if your business is small, you can claim a business loss (deduction) if your expenses don't cover your revenue. However, you have to show "intent" to make a profit, even if you don't make one.
If you are the adventurous type, sell a few lures just for the opportunity for a tax deduction.
Consult an accountant/tax adviser to plan a strategy.
Brian
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Posts: 941
Location: Freedom, WI | You need to do the 720 tax and the 637 stuff. Then you need a sales tax # for the state you are in. With all of those you can get wholesale prices on stuff. Keep the money separate from your personal, I would suggest you form an LLC. It protects you and does not cost to much, at least in Wisconsin. There are deductions you can take done that way. You can always try and stay under the radar but if you sell to a bait shop the government can still check his records and come knocking on your door. There are people that will turn you in to the IRS( 720 tax is 10% and I can understand their reasons, still do not like it), I know a few guys that had that happen to them. That is why I am playing by the rules, the IRS takes no prisoners. Like Shane said talk to an tax accountant. |
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Posts: 619
Location: Verona, WI | It was worth the hassle in my mind. I don't sell many lures and don't want to - for me it's just a way to recoup the costs on something I like to do. I decided to "be legal" after hearing a prominent guy in the industry talk about "legit" bait companies trolling message boards and ebay looking for guys to turn in to the IRS for not paying FET. That made me make sure to have my ducks in a row.
Shane |
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Posts: 114
Location: Central Wisconsin | Thanks for the advice guys, I appreciate it. |
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Posts: 941
Location: Freedom, WI | wvhillbillyjim - In your case I would think you would just have to do the 720 tax. It might be to your advantage to do a separate company for tax purposes. The 720 tax is 10% of what you sell it for, so if you sold it to your bait shop for $10 you would pay $1 tax. If you sold it from your bait shop as the maker and retailer for retail of $20 you would pay $2 tax. Talk to an accountant, not a lot of them understand or know the 720 tax so he may have to look into it. The IRS even gives you different answers on it because it is written poorly. I do it correctly to cover my backside but it is an out of date tax code that should go, there I will get down off my soapbox now. |
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Posts: 4053
Location: Land of the Musky | In short (and I could write a book):
1) Make an LLC. Cost about $140 and you can use a program from Nolo called LLC maker. Prints all the forms out for you for the state you live in.
2) Get your state and federal tax ID numbers. Easy to find on the internet.
3) Get your FET number. IRS comes over and just takes a look at your "lure" making facility. At the time, mine was my garage and a table with lures all over it.
Walla, your a lure company. A little more needs to go into it but this is a good start for legal/taxes. Happy to help more if you need it. I learned everything it took on this forum. A few guys really helped me out and without it I would have went belly up in a year.
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Posts: 1504
Location: Oregon | It is definitely NOT worth the hassle if you are doing it to make money.........well at least not from my experience. On the other hand, If you enjoy the process of designing and building lures and making a bit of money along the way then I would say yes it is worth the hassle.
Jed
Edited by RiverMan 2/27/2010 7:10 PM
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Posts: 4053
Location: Land of the Musky | Plus what Jed says.....5+ years and have yet to pocket one dime so far. Figure it will be another 3 years for me and then I will start to see some profit. |
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