Yes, you will need a tax ID especially if you intend to make craft sales your business and also make a living by traveling around to craft fairs. It is very vital to make sure all your finances are in good shape before tax time.
Having a tax ID number also entails that you don’t have to pay taxes when you buy supplies from retailers. You must find out from your local government the requirements for getting a tax ID number, as this process will surely vary from state to state.
If you intend to sell crafts as just a hobby, or maybe you intend to visit just a few fairs annually, then it isn’t necessary to obtain a tax ID number. Instead, you should add whatever money you generate to your tax return for the year especially if you make over a certain amount.
Howbeit, it is still recommended that you research your local government for its requirements and also consult the Internal Revenue Service for the current year’s requirements for filing taxes on wages not reported on W-2 forms. Also, note that some craft fairs or shows in the United States mandate that you collect tax. There are two possible ways you can do this.
You can just charge the required amount of tax or you can inculcate the tax into your products by increasing the prices a little, however, do not forget to keep them at an affordable amount to make it easy for you to add up easily, such as by dollars and half dollars.
In most states, tax rates tend to vary even based on the physical location the items are sold. Cities and counties might require additional local sales tax rates coupled with the normal state’s sales tax, therefore you need to understand the correct amount of sales tax to charge, or you will have to pay it personally.
Each state in the United States has a varying threshold of the amount of revenue or number of items you are expected to sell before you are mandated to register for a sales tax permit and collect sales taxes. A good number of states like Colorado and California allow temporary vendors to leverage a one-time special event or temporary sales tax permit and not have to bother with the more tiring sales tax filing requirements when a general sales tax license is needed.
Other Licenses Needed to Sell Crafts at Craft Fairs
When selling handcrafted items at craft fairs, aside from a Tax ID, here are other licenses and requirements you might need;
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In the United States, there isn’t a business license specifically meant for selling crafts. You should know that some states require a business license for every business, while others don’t require one at all. Owing to that, craft vendors must do their research on the legal requirements before starting their business.
Note that irrespective of the small business you are running in the United States, you are putting yourself on the wrong side of the law if you fail to get a business license. When you first get started, nobody may notice, but as your business gets more successful, you become a bigger target.
When starting a business in the United States, you need to get a business entity (sometimes referred to as business structure). Note that some entities are simply the individual (sole proprietorship). You should take your time to research and ensure the correct entity is selected. Know that there are four primary types (sole proprietorship, general partnership, corporation, and Limited Liability Company) of business entities you can pick from.
Federal Employer Identification Number
The Federal Employer Identification Number (also referred to as a FEIN, Employer Identification Number, EIN, or Federal Tax ID Number) is a unique nine-digit number that identifies a business with the Internal Revenue Service (IRS). Note that any business with employees will surely be required to get an EIN. However, sole proprietors and single-owner LLCs without employees can choose to use the owner’s social security number instead.
A good number of craft businesses operate as sole proprietorships because their liability risk is quite low, but they may have to register their business name. In most states, a business operating under a name that is not the same as the owner’s full first and last name is expected to register a DBA (sometimes referred to as a Doing Business As, Fictitious Business Name, Trade Name, or Assumed Name). Note that this registration takes place with the state or county clerk.
When purchasing inventory to resell to customers, the business can source these items tax-free using this certificate. A resale certificate (sometimes referred to as a seller’s permit) lets a business source inventory, and instead of paying the sales tax to their vendor, they are allowed to charge the sales tax to the end-user of the product. A certificate only lets a business not to pay sales tax for items being resold, but sales tax will still have to be paid for supplies or equipment.
Insurance to Sell Crafts
Although it might not be mandatory for those selling crafts, it is, without doubt, a good idea to have that protection and peace of mind. According to experts, most crafts intend for their vendors to have general liability insurance, and some fairs themselves even offer blanket policies for vendors. Below are a few options for craft vendors when it comes to insurance:
- General Liability: This policy safeguards your craft business from bodily injury or property damage to someone else
- Product Liability: It safeguards your business if one of your products causes damage or bodily injury
- Inventory Insurance: This is known or used to protect your property (i.e., your craft booth and inventory)
- Business vehicle Liability: Caters to vehicles when being used for business purposes; most personal auto insurance does not cover any accidents when being used for business.
When looking to acquire insurance as a craft vendor, you must ensure that you are dealing with an insurance company that specializes in craft businesses, because not all insurance companies carry this sort of insurance.
Starting a successful craft business takes more than understanding how to hand-make beautiful items. While rules and regulations for starting a business change frequently, it is advisable you check with your local government to make sure you have all the necessary forms you require just in case anyone stops by to verify.