Hobby shop Business? Is it worth doing?

I have zero input on the taxes etc, but I can say this, making your hobby into a business can ruin your hobby.
When you run a business you have to do what makes money, what keeps you a float, often that is not the same thing as enjoying your hobby.

Good luck!
 
Carol,
first off thanks for commenting (educating) me on things. So if I understand things if I want to build a shop in my backyard my insurance wont have anything to do with it even if it is for just hobby?
Also you are renting a small place, a lab, that is used for selling what you make in the shop? My idea of the hobby business is not to make a living but more on the lines of offsetting some cost of product.
I have had at least 20 request in the last 3 months from people to make something or another for them. My concern is if I am doing this for pretty much the the cost of materials and not for my time is it a business or a hobby?
 
Leo,
Thanks for the input and I like your way of thinking!! I am looking at the cost of building the building and trying to figure if there is tax break someplace I can use. I do not plan on financing any of the building....I hate banks and loans so I try to avoid them. My concern also now is if my insurance wont cover the building!! It will not be attached to my house.

I think I am just gonna do it!
 
If you try to make money, it is a business. If you do not make money it is an unsuccessful business. If you only make things for fun, it is a hobby, but you still have to report profits you might make, even if your intent was not to make money.

The big difference comes with the tax advantage of making it a business... the ability to deduct the cost of equipment in addition to materials, for example.

If you have 20 requests in the last three months, that says one of two things to me. 1) You are a candidate to build a business, even if only part time, or 2) You are charging way too little. Please be fair to your fellow woodworkers who have to make a living at it, and charge a fair price for what you build. If you are a fair competitor, I found that many will become friends and will help you. If you undercut them, they will not be friends for long, and you will have trouble making a profit to pay for your shop etc.
 
Charlie,
Thanks for the insight. I do have a CPA that I use...my cousin. I will be speaking to her this coming Tuesday at our weekly cousins night out at the brewery! What your doing is what I am talking about...except I still have my real job. I do not want to really make money at this as I really love woodworking, I just want to cover the cost of materials. I get paid by the compliments I get on what I have made and the smile and the awesome feeling I have for making something that somebody can enjoy.
Thanks for the input.
Mike
 
Bill,
Your right about it all the way. Except I have not quoted out any prices. Well one. A friend wants a coffee table and I said cost of materials is all I need.
But I kinda feel the same way. I use to have a boat.....I golf 2-3 times a year use to be 2-3 times a week....I still hunt and fish alot! But I enjoy the wood working!
 
Stuart,
You are correct! By the way....... I LOVE CANADA!!! Its my favorite vacation place. Beautiful country and beautiful people. We go to Niagra Falls every 3 to 4 years and I go to Red Lake Ontario fishing every year and Also to Manitoba fishing every year. Trying to get the wife to do the Falls every year also. I think we will be going this year!! its been 3 years.

Mike
 
Mike, when I had the detached building that I used as shop, I simply did not insure it. The cost of insurance was too prohibitive. And to be honest, I set aside some from each job to replace stuff in the shop. I was not totally self-insured, but the risk was tolerable and the loss would not have been as bad as it could be.

A few years ago my brother's house burned to the ground. Missed his shop and tools. What surprised him (and me) was the cost of clean up. His house insurance covered the building but only offered 10% of what it cost him to clean up the mess - and he did it himself. The estimates he got ran into the high 4 digit variety. Wow!

Many gotcha's in these things. Ain't life grand?
 
Mike,

There are a few things I mentioned in earlier posts.

1) I think you are confusing two entirely different things. A) selling a few items here and there B) business write offs. They do not fit together.

You said that you get "comments" about selling stuff that you do. Comments while nice to get is not a sale of an item. Many times, and it can easily be 30 out of 30 times, people are not even will to pay material cost for an item. So those "comments" do NOT in any way represent - sales.

The comments of how nice your work is very quickly turn to frowns the instant you tell the prospective customer that the pretty widget is $xxx.xx for only material.

Selling for only material cost is a bad practice. For one it severely undermines those that are trying to feed their family. Besides that, if you are going to sell something you SHOULD make a modest profit from it. There are a multitude of "opinions" on how to price your work, I will not go into that here.

It has been said, It is EASY to be busy, but not so easy to make money. If you are going to undersell your stuff you will be very busy. That kind of busy get really old really fast. Selling to make money can be very rewarding on several fronts.

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My examples of selling and paying taxes is based on - selling a few things here and there and not in setting up a bonified business. Though a Sole Proprietor business really is a bonified business. It is a very simple and very legal way to operate. There is nothing the IRS will condemn you for. This is a very simple approach that most small fry like myself use. For this approach there are not tax write off, especially as those that you mention. Keeping receipts and deduction the materials from the sale is acceptable. Write off from building an addition is not acceptable.

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Expecting to take the write off as you mentioned in building a structure in the way you are suggesting with a 30 comments in 4 months in my estimation is going to get you in trouble with the IRS.

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A business that you can deduct business losses from is NOT a hobby business. Your mention of 30 comments is NOT a business plan and not a foundation to form this sort of business. In this case I fully agree with Rob, in that you need a bonified business plan, and Rob would be a good resource to help to develop a business plan.

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A) A CPA is not a laywer - this will give you "part" of the story
B) A Laywer is not a CPA - this will give you "part" of the story
C) A Business consultant - this

I would strongly suggest you contact ALL with your plan to get the legal counsel as well as the financial counsel as well as business counsel.

When I set up my business I had both. There are rules and laws that most average people are not aware of.

Getting any more than a "sense" for what you need from a forum such as this is asking for trouble.
 
Charlie,.....What your doing is what I am talking about...except I still have my real job. I do not want to really make money at this as I really love woodworking, I just want to cover the cost of materials. ....

I built things for pay for 20 years while I still had a full time job. But please Please PLEASE charge a fair price for what you build. Not a price that pays you $100 per hour to work at snail's pace savoring time in your shop, but a price competitive with decent furniture stores. Be fair to the craftsman down the street who is trying to feed his family. Be fair to yourself if you someday want to "retire early" to woodworking as I did.

One of my biggest worries as I transitioned from part time to retirement time was sales tax. Through my working years I had not charged anyone sales tax on what I made for them. Could the state have come after me for the sales tax I did not collect? What is the statute of limitations on sales tax?

I suggest you become a business ASAP, and start to collect sales tax immediately. (You will no longer have to pay sales tax on your materials.) Set your prices based on prices from a quality store (not IKEA or WalMart), nor on flea market prices unless your are just refurbishing flea market junk.

Enjoy building quality items, for reasonable prices (not just cost of materials), and be sure the customer knows that if they buy from you, they will get it when it is done. The best artisans often make customers wait months or years, and if they want it fast, you don't want to do it for them while you still have a day job.
 
Hello Mike!

I know I'm late to the party, but I figure it wouldn't hurt to share my opinions/experience.

For years I worked at a Woodcraft retail store. I worked 30 to 38 hours a week, but the whole time my goal was to go into woodworking full time. SO....I got my LLC set up, and started taking jobs "on the side". The whole time I did this I knew that if the city I lived in really wanted to shut me down there was nothing I could do since I was running things out of my house. Now, because I wanted to go full time I claimed EVERYTHING that I brought in. I knew if my shop blew up my home insurance wouldn't pay. If someone broke in and stole my tools I was SOL. If someone got injured in my shop I was liable, but had no insurance. Those were the risks I KNEW I was taking, and by golly I was gonna get the shop off my property as soon as I could. After a few years I moved into a small shop space, 1350 square feet. I had to pay a bunch in build out costs, but it was great. BUT BUT BUT, now there was overhead. $750 each month plus insurance. The insurance company never even came to my place of business, and I was covered for $40000 worth of equipment, had $1000000 in leability coverage, etc.. for $105 a month. Easy peasy, but it became more difficult to make money.

So that was the city. My friend who also started a wood shop lived in my city's township. He had a separate building for his shop, he got approved to run his business out of it, and he paid his taxes. In his case, he NEVER was at risk, everything was done in accordance to "the rules", AND it was not too difficult to stay in the black. In fact, he even had to put his approvals to the test. A neighbor drained their pool right down the hill that led to his shop. He made a claim and got covered. He also took the neighbors to court and won. Later on he moved into an industrial space as well.

So I guess what I am saying is that if you set up a proper business/business name just keep it legit and pay what the government wants cuz by starting a business you basically state "I am prepared to pay the necessary taxes, insurance, etc..." Interestingly, you actually may be able to set things up on your property and be good to go in the eyes of the powers that be. It would be fairly easy to make money, and you wouldn't be "at risk". That would awesome for sure!

In the immediate future, if you don't set up a business I don't think there is anything wrong with letting people pay you for making stuff from time to time, nor do I think the government cares. That said, at a certain point if you are really bringing in some coin you may want to get your ducks in a row.

Anywho, there's what I have been exposed to. (By the way, I personally had a lot of help cuz my father-in-law is a CPA and attorney) ;) I wish you the best, and I am happy to hear that people in your life are responding to your woodworking!

- Hutch

P.S. I have never had issues with not showing much profit. For years, before I was full time and after, I poured everything back into the business. Never an issue, cuz it was all on the level.
 
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Thanks for the input Hutch! Gives me something to think about. I did talk to my CPA....said to keep track and everything and keep it seperate. If I start making good money start and LLC or DBA. If it ends up being more a hobby and make a little coin ...put the cash in a sock!
 
Charles and Leo,
If I build something for someone (outside of family) I would charge accordingly.....Most of the folks who contacted me on building stuff I suggested that they look at a few places to see what type of costs they would be looking at.....Less than half contacted me back and I had to decline to do anything until I get my woodshop built. I had 2 different car dealerships want tables. One wanted 3 another 2.
We did do one of the car dealership (2 tables) that was fairly local. The other was 385 miles away. The 2 tables were 8ft long...charge then $1750 per table. They paid and all were happy!
We had about wood cost and about 70 hours in it. That was 2 of use at 70 hours. So split between us thats only $12.50 per hour.......not counting material cost. Material cost for the 2 was less than $500
So we didnt get fat on it! But we made a little. Its hard to figure what your time is worth......and how long it will really take. We enjoyed the build and I hope we didnt under price it much, Learning curve!
I am pulling the trigger on starting the wood shop in the next 2 weeks.
 
Shop update:
I am pulling the trigger. Gonna get the shop build started in next 2 weeks...Hopefully! Going to end up being 24x26 200 amp electric service. Electric heat.... Window A/C unit. 1 man door Set of French doors ( Not allowed by city code to have garage door) . 3 double hung windows. Concrete pad in front 6 feet out 26 ft across and sidewalk to my house patio.
It is going to be a hobby shop....no official business. My homeowners insurance tells me I am already covered for the cost of replacement of outside accessory building with contents up to 104K covered under current policy. Guess I had too much coverage for the last 26 years! I will end up drywalling the walls and ceiling. I am going to regret it but I am doing 8 ft ceilings. I also have height restriction....But Im sure I could do higher ceiling but had to compromise with the boss. I will be using the attic for storage of all the crap ( as the boss calls it) that I have in current garage and basement!
 
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I am going to regret it but I am doing 8 ft ceilings. I also have height restriction....But Im sure I could do higher ceiling but had to compromise with the boss. I will be using the attic for storage of all the crap ( as the boss calls it) that I have in current garage and basement!
Yes, you may. If your office, rest room, finishing room is at one end, consider using scissor trusses over the open shop area to gain ceiling height. Then use the areas over the office area as attic space. This should help you stay within the exterior height requirements and maximize your ceiling height.
 
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I agree with Rennie - you WILL regret the 8 foot ceilings. I have just under 10 feet in my garage, and the "just under" is a frequent irritation. I don't mind trimming lumber to 10 feet, but hate cutting it to 9 1/2 feet to lean it against the wall. Pivoting a sheet of plywood requires almost 9 feet, and with ceiling lights, becomes a challenge.

I suggest you renegotiate that one number.
 
Thanks for the input Hutch! Gives me something to think about. I did talk to my CPA....said to keep track and everything and keep it seperate. If I start making good money start and LLC or DBA. If it ends up being more a hobby and make a little coin ...put the cash in a sock!


LLC and DBA are two entirely different things.

You can print out Publication 535 from The IRS which explains a LOT about hobby vs business and what deductions are available. You can certainly sell something made in your hobby shop for a profit and take certain deductions. As a Hobby - you can deduct UP TO your sales amount but no more. As a regular business you can deduct more than you sales and offset your "other income" BUT be careful on that one. There are rules that apply. I am sure your CPA is aware of the rules. They are all in the publication 535

At this time I am classified as hobby, but may turn the table and reclassify as business.

Hobby and making a little money on the side with certain deductions based on Pub 535 is very very easy and very legal.
 
I have absolutelyl no desire to start any business. However, I did read every word in this thread. It was very interesting.

When I started school I knew that when it was over I wanted to be my own boss, own the business, own the building, etc.

Money was darned tight the first three years; it was a good thing I lived frugally while going to school, had purchased "War Bonds," saved every penny, luxury was spending $0.30 to go to a movie, etc. I had a wonderful wife who would put up with that level of housing, old car, etc. She would also have kicked my butt if I didn't keep excellent records. The point to the preceding sentences is, I knew what I wanted and nothing was going to prevent having it. TOTAL DEDICATION, failure was not an option.

I went to every class, seminar, etc. on how to manage the business aspects of the business. It is now time to shut up. So I will say,

Enjoy,
JimB
 
Hi Mike, it's great that you are able to get the dedicated shop underway. The garage I started in was a bit smaller than what you will have, and I was able to do a heck of a lot considering it's size. My garage had a 8.5 foot ceiling, and let me tell you, that extra half a foot was unbelievably important. So I second the sentiments about having a taller ceiling. Anywho, I look forward to hearing of the progress!

- Hutch

P.S. It's not uncommon to unintentionally under bid projects. I still do that from time to time. Big projects/jobs are generally the ones that have this happen. ;)
 
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