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Valerie Jo
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Valerie Jo
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Missouri USA
Member since 8/2/09
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Date: 1/24/13 11:53 AM

I have been asked if I would like to put items in a shop on a consignment basis. The store is collecting taxes. Does that mean I don't have to worry about taxes? Do I still have to fill out tax paperwork if I sell $600 in a quarter? Not that I could but I was wondering about that. Conflicting things are on the internet. Thanks!

purplebouquet
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purplebouquet
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Arkansas USA
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Date: 1/24/13 12:04 PM

I hope I won't get flamed for this positive endorsement, but I've called the IRS with tax questions on several occasions and ALWAYS had excellent customer service: fast, polite, complete and accurate! (I wish I could say same for Allstate, AT&T, Comcast, Blue Cross Blue Shield, Regions Bank and many more commercial businesses.) They have an 800 number and they won't ask you personal information such as your SS#, name or address unless they'd need to access your files, which they wouldn't for this generic question.

Claudia

KimG
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KimG  Friend of PR
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New York USA
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In reply to Valerie Jo <<
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Date: 1/24/13 7:38 PM

You should verify with the owner, but I suspect they're collecting state and/or local sales taxes, not any taxes related to income. You won't be working for the shop as an employee or on contract collecting wages, so I think their only responsibility may to report that they paid you ''X'' amount over the course of the year, and I think it's $600 annually, not quarterly. You're supposed to pay your estimated taxes quarterly. On the income front, I agree with Claudia--contact both the federal and state governments regarding your responsibilities, particularly if this is a hobby as opposed to a business. Another option would be to contact an accountant, but that will probably cost you money unless you know someone, and the advice from the government will be ''free''.

Kim

Valerie Jo
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Valerie Jo
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Missouri USA
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Date: 1/24/13 7:53 PM

Thanks! There are so many taxes and it is confusing. I will try the IRS. Or wait until I sell something! LOL

Andi
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Andi
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New York USA
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Date: 1/24/13 11:13 PM

Not only do you need to find out about federal and state income taxes, but county and local taxes too. Here in NY there are different taxes for income based on the county or town you sell the item in, and the town and county you live in. I believe the federal definition of "hobby income" is $250 annually. If you make more than that the income is handled differently. Also, if you don't pay estimated fed/state tax quarterly there is a $$$ penalty. Lots of thinks to check. "I didn't know"usually doesn't work with the IRS!

quiltingwolf
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quiltingwolf
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In reply to Valerie Jo <<
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Date: 1/25/13 7:46 AM

This is strictly about sales tax. The IRS can't help you with this. You would need to contact you local state's comptroller's office. You also have to keep track of this if you this to make sure the store is charging the right amount of tax. It shouldn't be subtracted from money paid to you. The person buying the item pays the tax then the company, store etc pays the government entity. So should be no charge to you. I do all my companies sales tax reporting and payments. The IRS would only be a concern if you worked for them and drawing a paycheck and they weren't taking out payroll taxes, which unless you and independent contractor they have to. It's really no concern of yours it's between the store and the local government agencies. They are the ones doing the selling. As far as income from this you would need to find the profit made on these items not the not the selling cost. The profit is your income and that's the amount you report if needed. But below a certain amount you don't have to. And if it's cash well then it's up to you.
-- Edited on 1/25/13 7:51 AM --

------
quiltingwolf.blogspot.com

poorpigling

poorpigling
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Texas USA
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Date: 1/25/13 9:37 AM


Valerie.. You might in time.. if not in the near future sell a lot of goods so might as well find out all the tax consequences now.

The store owner is collecting the sales taxes and reported/paying them to the govt entity needed.. Those you do not have to worry about.

But you might as far as any income you may derive from the sales..

I suggest you go to the library and check out a few books on this.. And this time I do mean the library and not the net for reasons I won't go into.

Calling IRS for advise is a good start.. but you should also know a bit more about inventory and so on.

Lets pretend for a minute.. that sales go well, and you start deriving a steady income from this.. Then for sure you would want to pay any state, local, federal taxes as required, when required..

Two main reasons for this.. l. You do want to sleep well at night.. 2. If you make a profit.. and lets face it.. if you don't you don't want to continue... then you can then deduct the cost of any fabric etc etc etc that you use to make your items.. You can even depreciate your machines..
But reason number three would be.. if you keep good books, then you can find if you are REALLY making a profit.

Too much advise is needed here for me to go into this in depth.. but do read up on this subject.. Keep in mind not all th ebooks in the library may be current in advise.. but you can check out any newer tax laws etc on the net.. At appropriate sites such as IRS. .

Good luck .. This is a fun and rewarding... I hope you do well..

KimG
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KimG  Friend of PR
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New York USA
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Date: 1/25/13 11:39 AM

Rather than go to the library to research tax law and accounting practices, which I think could easily be overwhelming, I'd recommend checking out (or buying) ''The Complete Idiot's Guide to Making Money with Your Hobby'' by Barbara Arena, who is/was Managing Director of the National Craft Association. This book is written for the non-accountant/tax lawyer, and should give you a general idea of how to, well, make money with your hobby. It's divided into 6 parts:
1. Thinking about it
2. What's your plan
3. Legal/Financial
4. Proft
5. Where to sell
6. Marketing
providing easily understood advice for getting started. The list price on my copy is $18.95, and you can probably get a used copy for less, if it's not available form the library.

Another option for free or inexpensive advice is to contact SCORE , which is a group of retired business execs supported by the SBA. You can ask questions, find a mentor, or attend seminars, some of which are free.

poorpigling

poorpigling
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Texas USA
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In reply to KimG <<


Date: 1/25/13 2:41 PM


They do have that Idiots book at my library.. In fact they carry a full line of Dummie and Idiot type books.
You just never know when Mr. P might want to do a project of some sort. so I do check those out regularly.. and they are good reading/reference books..

JeanM

JeanM
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Virginia USA
Member since 6/25/05
Posts: 182
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In reply to Valerie Jo <<


Date: 1/25/13 3:24 PM

If you sell products directly to consumers, you will need to collect sales tax(es), and then pay the taxes to your locality/state. Each state has its own regulations about what is sales-taxable (tangible items, usually), and when the tax has to be paid to the state.

I'm in Virginia, and we have a state sales tax, plus a locality sales tax. Both sales taxes are reported and paid to the state (which then pays the localities involved); many localities have additional taxes on meals. Taxes are reported and paid monthly, or quarterly, depending on the amount of taxable sales (not all sales are taxable - i.e. sales of services, or labor, is not, usually, subject to Virginia sales tax).

Even if you stay on just the state and federal websites for tax information, the information can be confusing! Plus regulations change, more often in some states, which adds even more confusion...

IMO it is worth a consultation with a local accountant (or tax preparer) for advice - or maybe a better term is coaching - find out what records you need to keep, what taxes you will need to record and pay in your locality/state, what dollar thresholds require reporting, etc. - and maybe even have them do the initial tax return (the accountant wouldn't have to do your whole tax return, you could ask them just for the portion that your business needs).
-- Edited on 1/25/13 3:33 PM --

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