6 Important Things To Know About Setting Up Your Craft Business

By Susan West - 02/01/01

Are you looking for information about tax, legal and insurance issues around setting up a craft business? Here are 6 tips to help you on your way.

There are a number of different types of things to take into consideration as you are setting up your craft business - tax issues, legal issues, and liability issues. I have tried to create a concise list of things to think about upon start up. Please be aware that many of these issues are specific to states and/or localities. You do need to double check with your own authorities on the regulations in your state or town. This list is meant to provide you with a starting point, and point you in the right direction to get your business started legally.

Tax/Legal Issues

Choose an entity - proprietorship, partnership, corporation or S-corporation. Most likely a sole proprietorship will be the most appropriate to begin with and the least expensive to set up. You will need this information come tax time when you'll need to file a Schedule C.
Choose your business name and register it with your town or city hall. This will be called your business certificate or license and will probably cost a nominal fee. Each town has different regulations, so check out what yours are.
Register for a certificate of occupancy. Because you are running a business from your home, you may need this. Most won't have a problem with giving you one, especially if you don't intend on having customers come to your home. Again, check with your town regulations.
Register with your state for a sales tax certificate. You will collect sales tax whenever you sell in your own state, and you need this number in order to report the tax you collect. You need a sales tax number/certificate for every state in which you do shows. Most often you will get a resale certificate at the same time that you get your sales tax number. This resale certificate is a form you fill out and give to wholesalers so that they have a record of who they sell to. This is necessary as they may need to prove their wholesale customers are legitimate and they didn't need to collect that sales tax.

Note: In different states, this may be called different names.
You may choose to register for your sales tax in your own name instead of your company name. The advantage to this is that you may change your business name as you change products, evolve, change businesses and you won't have to worry about changing your tax information. This is only appropriate if you always stay a sole proprietorship. Again, check with your state for any specific regulations.

Insurance Issues

Some shows may require liability insurance. Check with the promoter of the shows and with your insurance agent. Before shopping for insurance, put some thought into what you want/need to know. Insurance coverage can be for liability or liability and property. Regular homeowner's insurance in most cases will not cover any inventory, materials, equipment, etc. that you use for your business. You need to consider what you want covered.

Do you want coverage for:
- Finished work, raw materials, tools, equipment, work in progress
- At home/studio, at craft/trade shows, in transit
- Loss/damage from fire, flood, storms, theft, vandalism, etc.
- Product liability, bodily injury, property damage, personal injury, advertising
- At main place of business, landlords (craftmalls/shops,etc.), show promoters - do you wish to have them named as additional insureds?
Be sure that your product is:
- Insurable
- Complying with state and federal health and labeling laws
- Has the proper disclaimers built into your labels

The best thing to remember is to do your research into the necessary issues with your town and state. Good luck with your business!

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