What type of business structure do you have?

[Sandra Darlington]

I have been reading about Sole Proprietorship, Corporations, LLC, different Partnerships, Inc...too many for me to understand. It seems there are pros and cons about all of them.

What type of business structure do you have for your quilt business? And why did you choose it.

I hope this will be an interesting topic for many of us inquiring minds.

Thanks

[marycontrary]

I am looking forward to seeing some of the responses. Thanks for starting this thread, Sandra!

[carolinequilts]

Sole Proprietorship. My machine is in my home and I do not have employees, so it makes sense. Also, I still have a regular day job, so my profits (or losses) go against my personal income tax. In the first year or two of business it is usually a loss due to start up costs (machine, supplies), so my personal income will be reduced and I'll get a tax refund from tax over-payment in my day job.

[Quilting Heidi]

My scenario is exactly as Caroline.

[Butterfly]

I'm a Sole Proprietor. My machine is at home and I have no employees. Small potatoes.

Jessica

[quiltlover03]

Same as above, working from home, no employees, easy as making pie (but i can't make Pie if my life depends on it!)

[Jhend]

Sole....just what Caroline said.

[mrsbishwit]

Sole Proprietorship, for the same reasons as everyone else...less of a headache all away around.

[renaequilts]

If your business becomes very profitable you may want to ask an accountant about becoming an S corp.

The way I understand it...

You are able to pay yourself a reasonable wage as an employee, withholding taxes and such.

You may be able to save yourself money on the unemployment tax that sole proprietors must pay. And yes...all the filing is a pain in the neck so you need to make sure it is worth the effort.

My husband owns an S Corp and it is much better for him. He hires an accountant to do the filing. I also run an S corp and do my own filing. My benefit is not as great as his....his business is more profitable than mine

[quiltmonkey]

I am a sole proprietorship with an S Corp. I am a single owner/sole proprietor--- I'm the chief, the cook and the bottle washer. I don't have a partner. I don't have employees. I don't pay myself wages. This business is very "small potatoes" and not my main income, as you know I have a day job outside the home.

My CPA set it up so I am able to depreciate my machine over 5 years. All of my business expenses and business income is rolled into my personal income taxes and so far these past 2 years, Andre & I have gotten a nice tax return check! With our normal income already in the 28% income tax bracket, we are glad to get as many deductions as we can and the business write offs help! So far, my first 2 years as a business has been a loss... in the "red" but that is to be expected for starting up, considering all of the expenses up front. In 2009, I have worked hard to keep my expenses down and my income up.... and I am hoping that my 2009 business shows in the "black" even if it's just a penny in the black I would be thrilled. With my business involving the word "quilting" it's easy for IRS to perhaps audit me and identify this as a Hobby and I am doing my best to avoid being audited and avoiding the "Hobby Loss" situation. I don't want to go there (hobby loss) after all of the time invested, expenses invested and hard work and effort I have made to make this a legitimate business!! It's not "just a hobby"

My CPA, she is also a quilter said some time down the road, if it seems to be a better fit, I might move to an LLC (limited liability corp) but right now the S Corp works best for my situation. My CPA does all of my taxes. I enter all of my business income and expenses, invoices, deposits, etc. into Quickbooks, print out my monthly business account reports, and at the end of the year, I give her my printed reports, and backup documentation, and a thumb drive with all of my data entry. We also give her our W2 forms and interest income, etc. and she does our taxes from all of that. I love my CPA. She is a wonderful person and has become a friend I can trust. She helped me set up my Quickbooks so it's designed very basic. VERY BASIC!!! I am a Keep It Simple Stupid kind of girl and I like it that way. So far, all has been good and it works well. The great thing with using Quickbooks (very user friendly) is you can make it as detailed or as simple as you want. And, you know me Sandy, I always chose the simple route......

Sandy, if you are considering going into business give a local CPA a call for a consultation, or contact someone at your local Small Business association (it's non profit agency for people like you and me) and your local SBDC can give you free advice and references/resources for starting up a business. When I was first getting into this biz, I took some (very inexpensive) classes from my SBDC and learned a lot.

Oh and there are some great resources on the Internet. The IRS web site has some EXCELLENT information (even videos) on small business. Check out the IRS web site. Really!!

http://www.irs.gov/businesses/small/article/0,,id=99336,00.html

[Janette]

Hi

I love quickbooks too here in the UK. I am an accountant and recommend it to my clients for its user friendliness, and use it for my own accounts preparation !!

It is tax season here and am desperately trying to finish my final few tax returns !!!

I am so looking forward to February so that I can quilt like crazy on my 3 week old Lenni !!!

Hopefully some time soon, I will be a quilting business too !!!

Janette

[Primitive1]

I too am set up like Caroline....lots of good advice Shana, I am still considering which accounting software to add to my new mac, quickbooks or wait for the new 2010 quicken for mac due out in Feb?

[Janette]

Quicken as I remember is nowhere near as good as quickbooks, Quicken I believe is just a cash book. It does not generate invoices for you or track customer payments etc. However I am not up to date with the newer version of Quicken perhaps they could have added some more procedures. The boxes should list the procedures that it does do though.

Janette

[Tamarack]

I chose to be in a Partnership with my husband for the first few years, so he could benefit from the tax credits as I do not have another job. Once my longarm business starts to show a profit then I will change it to Sole Proprietor.

Definately do your homework and find out what works best for your situation.

[Sandra Darlington]

Thank you all for the great comments. Yes, I am finally considering going into business...just considering it at this time.

I would think the Sole Proprietorship is the best fit for me, especially after the detailed explanation my friend, Shana, wrote here. Thanks Shana! I work full time also and would be quilting in the evenings or weekends, so the business would be very small. No partner, no employees, and I would quilt in my home.

Now I have to do some homework and get some things figured out. If anyone has more thoughts...please, keep 'em coming!

[Chocoholic]

Shana, did you mean the following?

'My CPA, she is also a quilter said some time down the road, if it seems to be a better fit, I might move to an LLC (limited liability corp) but right now the S Corp works best for my situation'

The reason I ask is because at the beginning you said you were a sole proprietorship.

[Quilter 4 Jesus]

Same here as Caroline and Heidi but I would make sure to check about your home owners insurance if its a home business. We separated the house from the garage (which is now my studio) and I pay the insurance on the studio separate. My insurance agent had trouble getting a quote for my policy because they could not determine the type of business it ended up being listed under "artisans" I think. Anyway my policy covers the studio and contents as well as equipment or customer quilts in my vehicle (up to $2500). Do your research and Good Luck!

[ThreadWaggle]

Actually, if you are in the US and using a PC there is a version of Quicken that does invoices. Quicken Home and Business. It is not a true accounting software, meaning that it does not do double entry accounting and it does not have all of the features that Quickbooks does. Quicken is based on a check register instead.

With that said, I use Quickbooks for my business, which is an S-Corp.

[TAQuilts]

I too have spent countless hours in recent months investigating turning my hobby into a small business. I also have a Full time job so my new quilting small business would be part time and in my home. All I can say is The Federal Tax laws and our government are certainly against a Small Business started in the Home. I boil everytime I hear Washington talk about the Bankers unfriendly atitude towards start up small businesses on TV.

The best reception I've had about starting my business in my home was at my Bank.

In all of this economy mess I haven't seen Washingtion move one inch on rules that would make it easier for small business to start up whether it be in home or not. The Hobby / Business test rule should be rewritten or thrown out.

I actually sent the Federal Government an e-mail stating this.

[TAQuilts]

Sorry I pushed the button before I was finished.

Almost all of my permits and licences are in now place, once this is done my insurance company will issue me a business policy. Hope to be in Business by

March 1st as a Sole Proprietor.

I told my DH I would be working my tail off without any vacations for the next 5 years if for no other reason than to pass the Feds Hobby Rule test. I certainly don't want to end up paying them back.

I've been doing this as a hobby and have a large collection expensive of LA Tools and Threads. As a safety measure My CPA suggested that I not transfer all of my tools and thread into the business in the beginning, to do it over time as income flows in. Guess there is a way I can later sell my personal tools etc to my business. Will let my accountant handle it from here,

Sew Let the Fun Begin cuz I'm really getting excited:)

[Sandra Darlington]

Terry,

Was it an accountant who you worked with for the permits and licenses?

That's also very interesting about selling your tools to the business over time. Humm. I also have a large set of tools for my Liberty. They are all bought and paid for...except my Circle Lord goodies which I pay Michael monthly for. It really adds up fast into the thousands of dollars.

It seems like most everyone is a Sole Proprietor.

Thanks for your info and good luck with your business.

____________________________________

Angela,

Thanks for the info on Quicken.

____________________________________

Sherry,

I knew I would need to talk to my insurance agent about my home studio. Mine is in the basement of my home, in one room, formerly the rec room, and formerly a bedroom. The rec room/studio is 100% my dedicated quilting space, but I have extended into a storage closet and part of my laundry room, too.

What I didn't think about was insurance on the quilts as I am transporting them in my car. And, that's what I would be doing, as I won't have customers coming to my house - husband's #1 rule. Thanks for mentioning that.

[quiltmonkey]

Originally posted by Chocoholic

Shana, did you mean the following?

'My CPA, she is also a quilter said some time down the road, if it seems to be a better fit, I might move to an LLC (limited liability corp) but right now the S Corp works best for my situation'

The reason I ask is because at the beginning you said you were a sole proprietorship.

OK let me explain: A sole proprietor can be an S Corp or an LLC; A Partnership can be an S Corp or an LLC. Sole proprietor just means there is one person; one owner of the business.

[quiltmonkey]

I wanted to add that every state has different laws regarding business, so definitely check with the specialists for guidance. And remember, Small Business is BIG business!

[TAQuilts]

Sandra, I applied for all of my own permits etc. My CPA did discuss which ones I might need as did my attorney. Unless I wanted to pay the attorney for this service it was up to me actually apply them myself, which I did, all on-line, it was easy to do after getting their advice.

My CPA had me make 2 inventory lists because of the high $ amount of the Supplies and Toys I already owned for my Hobby. On one I listed LA Machine and only the items I knew I needed or would use immediatally. I listed my CL base unit only, plus my Thread and only my favorite Rulers. This list will be transfered to the business at start up. On the other list I listed the rest of my rulers, Pantos and CL Templates I own etc. As I will need to use anything from the 2nd list for my business it would be transfered (bought so to speak) from my personal inventory for the business. Any brand new toys or supplies I buy from here on out will be bought by the business for the business. Both my CPA and Insurance man were a bit surprised how many $ of inventory I had for my Hobby. The only reason why the CPA suggested doing this was because I'm starting out Part-Time due to my other job, which will truely limit the amount of income I could possibly generate the first few years. He didn't want me to get caught in the IRS hobby trap.

Most Importantly though because of being a Home based business he wants me to budget and buy 2 small business advertisements in the newspaper each year at least until I become profitable. I can do this for about $30 each. Even though I might not get many clients this way as many have said. He says along with paying for my Business Insurance Policy this helps legitimize my hobby /vs Business issues to some degress with the IRS if this ever comes up, and it could even buy me more time to become profitable with them if I need it down the road.

It's all a bit scary, and at times I wondered if turning my hobby into a business was worth it. Now that I've finally muddled my way through the process I'm happy to say I'm really getting excited and can't wait to see what my first "In Business Quilt" looks like.

Wish you well and Good Luck!

[Quilter 4 Jesus]

Sandra,

The insurance cover a max. of $5000 on quilts in my studio (I think) they explained it like this, if I have 10 quilts in my studio and have a fire they would pay $500 per quilt. It also covers if I personally damage the quilt during the quilting process.

I am beginning to wish I made the rule no customers at the house as they pilfer through everything!!