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GETTING STARTED IN BUSINESS: What You Do First To Make It Official! Design-In Practice Series

Posted by learntobead on July 16, 2020

But First, If You Have Not Already Done So,
 Make These Particular Choices Right Now

Pick a date. It might be easiest, from an accounting standpoint, to pick January 1st. But you can pick any date. This is the date your business has been founded, and your business obligations (discussed below) begin.

Define your fiscal year. It would be easiest to make your fiscal year January 1 through December 31. But any 12-month bounded period which works best for you would be acceptable.

Set your goals for success. Everyone’s goals will be different. You might want to sell a few things occasionally. You might want some steady extra income. You might want to be financially self-sufficient.

Determine what business organizational type you want now, and how you might want to evolve into the future. These range from hobbyist to sole proprietor to partnership to various types of corporate arrangements.

The purpose of this article is to provide the how-to knowledge you will need to know to get started in your design business, whether making jewelry or other crafts, or working on projects involving design. While the specific names of some licenses and registrations will vary by locality, there will be comparable things where you live.

NOTE: The information in this section is a guide. It is not a substitute for sitting down with an accountant, lawyer or business consultant.

Specifically, I want to demystify and review with you these things:

1) Getting federal, state, local licenses and registrations

2) How to protect your intellectual property
 
 
3) What form of business? Sole proprietor, partner, corporation, limited liability corporation.

1) Registrations and Licenses

You register and get licenses for your business for several reasons. First, you will be setting up accounts with various government agencies. This allows you to collect money for them, and then transmit that money to them on a regular basis. This might be sales taxes, payroll taxes, property taxes, income taxes, business census information, and on and on.

The account numbers associated with each registration or license, in turn, allow you to present yourself as a business. They make you look more official and give you more legitimacy. They open doors for you to get deep wholesale and manufacturer discounts.

But, after you register or receive a license, each is associated with some application fees, some have annual renewal fees, some have income or property tax levies, most require periodic paperwork and more involved accounting and bookkeeping.

So, to get the benefits of lower business costs to you, you will incur some additional monetary and time costs. You will have to decide at what point in time becoming an official business is right for you.

Let’s look at some of these things I have had to get doing business in Tennessee. Most of the application forms can be found totally or partially online.

STATE

a. Registration to Collect Sales Taxes (called a “tax number”, “wholesale number”, or “resale number”)

This registration sets up an account so that you can collect sales taxes on each of your in-state taxable sales, and then transmit these sales taxes to the state. You only have to register once. There is a small registration fee, but this is a one-time fee only.

The application will ask if you will be doing more than $4500. (or some similar amount) of sales within the current year. If not, you do not need to register. However, even if you don’t think you will, this does not prohibit you from saying Yes. Saying Yes means you will start to incur costs (fees, taxes, paperwork), and have to be more organized as a business. But it also means you will be able to purchase inventory at wholesale prices.

After a few years, the state will review your activity. If less than $4500/year (or that similar amount required by your state), they will de-activate your number. You can simply and easily ask them to re-activate it.

Handled in Tennessee by the state Department of Revenue.

b. Business registration number (you might end up with separate business registration numbers for the city, county and state you do business in, or there might be a single number used by all three).

This number allows you to pay business income taxes (to your city, county and state), usually once a year. In Tennessee, this is collected each April 15th. Tennessee also collects a registration renewal fee each year.

In Tennessee, handled by the state Department of Revenue.

c. State Employment Account Number. (It might be called a State Unemployment Account Number in other locales).

If you have employees, and thus collect payroll taxes, you need this number to submit these taxes to the state. Typically, you pay these quarterly. You only have to register once for this.

In Tennessee, handled by the state Department of Labor and Workforce Development.

LOCAL CITY AND COUNTY

a. Business License from the county you live in (from County Clerk)

You use this number to submit business county income and property taxes. 
 You renew this annually.

b. Business License from the city you live in (from City Clerk)

You use this number to submit business city income and property taxes. 
 You renew this annually.

NOTE: If you register for a State Re-Sale Number, the State will eventually inform your local county and city. Your county and city will check if you have registered your business with them. If not, they will find you. This works in reverse, as well. If you register with the city and county, they will inform the State, and the State will eventually find you.

c. Business Property Taxes (sometimes called Use Taxes; in Tennessee, called Schedule B)

Each year you send the state and/or county and/or city a list of your 
 business property assets. About 6–8 months later, you get an invoice due 
 notice from the state/county/city indicating how much business property 
 taxes you owe.

Your business property is: displays, tools, register, telephone, computer, 
 fax, credit card machine, copier, furniture and the like; things that will be 
 around longer than 1 year. Some states might consider major (meaning 
 costly) software, such as accounting software, business property. Other 
 states do not.

You do not have to list everything, but you have to list somethings. Many people who first get started think that if everything — tables, calculators, computers, phone, etc. — are old and used, or given to them by someone else, that their value is $0.00. It is not. Here you would estimate the value or depreciated value at the time you consider the first day of your business. You can check auction sites online, like Ebay, to gauge current values.

If you are leasing any equipment, you would list this separately.

Your business property is NOT: inventory, consumable supplies (such as paper, ink, staples, and the like), the parts you use to make your jewelry. It is not something assumed to be used up within a year.

In Tennessee, the state uses a different depreciation schedule than the 
 Federal Government. Your property, from the State’s standpoint, never 
 gets fully depreciated as on your Federal taxes. You cannot expense your 
 property for state purposes, although you can for Federal purposes. This 
 means you have to keep separate Assets Lists for the state and for the 
 Federal government.

d. State Unemployment Insurance Form — if you have employees, you will be submitting state payroll taxes (SUTA) collected on their behalf to the state, usually quarterly.

FEDERAL GOVERNMENT

Federal Income Tax Forms (available from the US Internal Revenue Service online)

Each year, you summarize your revenues and costs on an income tax form (really a series of forms, beginning with a Form 1040). Depending on what form of business (discussed below) you are organized as, you will have different forms to fill out. Learn how to do most of this by yourself without having to pay an accountant or tax attorney. This will save you a lot of money. Use these professionals for the more difficult, confusing parts of the tax code requirements. Besides the Form 1040 Income Tax Return, you will be completing one or more of the forms below.

Most of these are handled by the US Internal Revenue Service. All the forms are available online. Some can be submitted electronically; others, you submit by mail.

a. 1040-ES You will need to submit estimated income taxes to the Internal Revenue Service (IRS) at least quarterly. You do this online, and easily done by yourself. When you do your annual taxes, you will reconcile these payments on your form 1040.

You will be paying these online through the IRS website.

b. Schedule C — You use this form if you are a sole proprietorship to report your revenues and expenses, as well as the total value of your inventory on the last day of the year. This is a form you should be able to fill out yourself.

The only tricky part is that in the expenses section, when it asks for the Costs of Inventory, it is asking only for the costs of the inventory that you have sold during the year. This is NOT all your inventory costs. The inventory bought but not sold during the year is treated as if it were cash. [In your inventory management procedures, you need to be able to accurately track the costs of your inventory that has sold within the current year, so you can deduct these costs from your revenue, thus reduce your tax burden if you are showing a profit.]

c. Schedule SE — self employment taxes. You have to pay both the employer and the employee payroll taxes (so double-paying on yourself as the sole proprietor), if you show a profit on your Schedule C. This can end up being a big number. This is a form you can complete by yourself.

d. Schedule K — If your form of business is a partnership, you will be completing a Schedule K to document your revenues, expenses and profit distributions. This can be a very confusing form, so it is a good idea to have an accountant complete this. On this form, it will indicate where various calculated subtotals or totals should go on the 1040 form, which is something you can do yourself.

e. Form 1120 — If your form of business is an S-corporation, you will be completing a Form 1120 to document your revenues, expenses, profit distributions and tax obligations. It is a good idea to have an accountant complete this.

f. Depreciation Form — This can be a confusing form The depreciation rules can change frequently. It is a good idea to have an accountant complete this form, at least the first time you have to fill it out. Then, perhaps, teach you how to fill this out in the future.

g. 941 Form — If you have employees, you will be submitting payroll taxes collected on their behalf to the Federal Government, usually monthly or quarterly, and reconciling all your payroll tax deposits quarterly.

You will be submitting these taxes online, and will need to set up an account through the IRS to do so.

h. 940 Form — If you have employees, you will be submitting federal unemployment taxes (FUTA), at least annually, but quarterly if these exceed $100.00 in a quarter.

You will be submitting these taxes online, and will need to set up an account through the IRS to do so.

i. Federal EIN (or, FEIN) Number. You can apply for this online through the Internal Revenue Service. This Employer Identification number is a tax identification number (sometimes referred to as your TIN number) similar to a Social Security Number (also a TIN), but attached to a business rather than an individual. You need this number if you have employees and are collecting payroll taxes on their behalf and have to submit these taxes to the federal government.

However, if you do not have employees, this number is still useful to have On various forms and applications you will be filling out for your business, you will be asked to put down either your FEIN number or your Social Security Number. The FEIN makes you look more of an official business. There are no fees or costs involved by having this number. However, the first year after you applied, you will have to complete a Form 940. On this form, you can indicate that you have no employees and will not need to complete this form again.

They will not deactivate your FEIN number, even after indicating you have no employees.

OTHER

a) At some point, you may want to purchase business insurance. If you are working out of your home, this may be problematic. The zoning laws in most places forbid businesses in areas zoned residential. Most business insurance packages will not cover a business if they are violating any law, in this case, zoning. Your homeowners insurance may or may not cover things related to your business.

b) If you have 5 or more employees (that’s the number of people, not the number of full time equivalents), you will need to purchase Workers Compensation Insurance. You do this through a private insurance company.

c) You will need a set up where you can process credit cards.

d) You will need a bank account. You can either set up a business account or use your personal account.

You will need checks preprinted with your business name on them. If you are using a personal account, get business-size checks printed up. If your business type is a sole proprietorship, whether the account is personal or business, your business name is your personal name. So you would have them print something like this, where DBA stands for Doing Business As:

Warren Feld
 DBA Warren Feld Jewelry

e) You will need an organized way (either in-house, or with an accountant or bookkeeper) to track your costs and revenues, and liabilities and assets.

f) You will need an organized way to store all your receipts during the year, and then all your receipts from prior years. You need to store all your receipts and ledgers for 10 years.

2) Protecting Your Intellectual Property

Trademarks and Service Marks

You will want to protect your business name, your slogan, your logo. A legal trademark or service mark expands the protections available to you. A trademark or service mark protects anything you use to identify your brand and differentiate it from other companies. These prevent other businesses from using any of these things, as long as you are actively using them yourself. If you stop actively using these, you lose your trademark or service mark rights to them.

Each State you do business in, as well as the US as a whole, offer opportunities to protect your trade or service mark. You can prevent someone else from using your business name, or product name, or logo, by registering this name or logo with the state(s), or US. You would put a TM next to the name you’ve trademarked, such as Be Dazzled BeadsTM

A US Trademark would protect you anywhere in the United States. The rules can be a little confusing. It is important to know ahead of time that you cannot trademark an adjective. For a US Trademark, I would suggest working with a trademark attorney. The trademark plus lawyer fees will be costly.

State trademarks protect you in the state you have the trademark in. This should include the state you do business in. It can include other states, as well. In Tennessee, this process is especially inexpensive and easy to do. You would not need to consult a lawyer here. For most designers, a state trademark coupled with some smart marketing and branding would be more than sufficient.

In Tennessee, trademarks and service marks are handled by the Tennessee Secretary of State. For the United States, these are handled by the US Patent and Trademark Office.

Copyrights

Copyright is another form of legal protection. You can copyright advertising copy, brochures, other marketing materials, instructions, jewelry designs, project designs, articles and other written materials critical to your business.

Copyrights can be done two ways. 
 1) Through the US Library of Congress
 2) Using a Post Office strategy

When you have written copy you want to copyright, first, somewhere on the document, you want to either use the copyright symbol © or write out the word COPYRIGHT. List your name and the year.

Examples: ©Warren Feld, 2020 or COPYRIGHT, Warren Feld, 2020

At this point, your document is considered copyrighted. The issue for you is if someone violated that copyright and you went to court to contest this, this would not be sufficient evidence for the courts.

Library of Congress: You can get an official certificate of copyright by submitting an application to the US Library of Congress. Your copyright starts the date the application is submitted. There is a minimal fee. It usually takes about one year before you actually receive the certificate. Courts usually require this certificate as evidence.

US Post Office: You can put your material in a self-addressed, stamped envelope and mail this Registered/Certified to yourself. On the outside of the envelope, write what is inside. When you receive it, however, DO NOT OPEN IT. The post mark date will be evidence of copyright. This will usually hold up in court.

NOTE: It is difficult to copyright a specific jewelry or project design. While there is no legal rule about what constitutes a copyright violation of the design, it is generally accepted that merely a 10% difference would not be a violation. That 10% difference might be a different clasp, a slightly different pattern, or a different color scheme (though the courts allow you some flexibility with color issues).

NOTE: It is expensive to contest a copyright violation in court. This might run $3,000 per incident.

The US Copyright Office will often reject jewelry and other creative project designs for lacking authorship because they consist of common or usual shapes and forms. When submitting your application, you should present a well-reasoned argument, based on basic principles of art and design composition, form and function, as to why your jewelry and patterns should be copyrighted.

You can also copyright a “collection of jewelry”, but you can’t add new designs to the collection, without getting new copyrights. In the collection, the pieces would need to share design elements and sensibilities, and these would need to be obvious.

Copyrights last for the life of the designer plus 70 years. Use form VA (Visual Arts). It usually takes about a year for the paperwork to go through, but your piece is considered copyrighted from the date you submitted your application.

3) What Form of Business?

Your form of business determines what tax forms you fill out each year. You can set y our business up as an unofficial or an official one.

One way you can set up your business is as an unofficial hobbyist. Here you do not need to register your business or getting any local, county, state, and federal licenses and accounts. Typically, your state or province that you do business in will have some kind of benchmark. In Tennessee (circa 2020), if you were going to make less than $4500. per year in sales, you would not have to register your business. You could make sales and not worry about collecting sales tax. You would not pay a business income tax to the city, county and state. You would not pay business property taxes. You would still, however, have to report your income to the government entities which collect personal income taxes. Virtually no paperwork. No worries.

Another way you can set up your business is as an official business entity. As you make your sales, you would also be accumulating money, such as sales taxes, which you would have to transmit on a regular basis to one government agency of another. You will begin to incur some monetary costs (business income and property taxes, and some bookkeeping / accounting costs, for example). You will begin to incur some time costs (securing and maintaining licenses and registrations; monthly, quarterly and annual reports to fill out; more time spent bookkeeping and accounting). However, a BIG ADVANTAGE!!! Is that you will be positioned to buy your inventory (and displays and furnishings) at steeper discounts, thus, make more money.

If you plan on becoming more than a hobbyist, you will need to organize and register your business as to its tax structure. Again, your options are:

(a) sole proprietorship

(b) partnership

c) limited liability corporation

(d) incorporation

Sole Proprietorship: Here you are the owner of the business and solely in charge.

If you are a sole proprietorship, your business name is your own name, and the name you use for your business is your DBA (Doing Business As) name. On various tax forms and registrations, you would list your own name where it asks for the business name, and there usually is a DBA line under this to type in your actual business name.

Sole Proprietorship Advantages: You will have less accounting and associated costs to contend with. Completing your state and federal tax forms will be easier. The business profits are your income, and are taxed as an individual.

Sole Proprietorship Disadvantage: This form of business does not protect you from liability damages. However, you can use your business insurance policy to provide a lot of protection here.

Partnerships: Here 2 or more people get together and form a business together. Partnerships, like marriages, are fraught with the potential for disharmony. Who makes what decisions? How are disagreements adjudicated? What happens to the relationship over time, particularly if the interests of any one partner begin to change?

If you are a partnership, your business name is your actual business name, and you would use your Federal EIN Number as your TIN.

Things partners should think about:
 
 a) You have a deep, honest series of discussions about each of your strengths and weaknesses, and what you can bring to the business

b) You write up a partnership agreement which 
 — details who will do what when
 — how you will distribute profits
 — how you will cover losses
 — how decisions for the business are to be made, especially when there are disagreements
 — rules for what happens when a partner wants to leave the business, or if all the partners want to dissolve the business 
— rules for how to handle growth, expansion, taking on new partners, managing employees

c) You notarize the agreement, and everyone gets a copy

Partnership Advantages: Two heads are better than one, usually. Share a lot of the administrative burdens. More accounting requirements and costs, but not as much as incorporation. Your business profits are your income as this profit is allocated among the partners, and taxed as an individual.

Partnership Disadvantages: This form of business does not protect you from liability damages. However, you can use your business insurance policy to provide a lot of protection here. It is difficult to share the responsibilities as partners.

From my experience, while one partner might be the “creative” one, and the other partner might be the “business one”, partnerships work best when both partners learn and take on both creative and administrative tasks.

Incorporation: Incorporating a business is essentially creating a separate entity (as if it were a person), thereby making the business separate from the owner (in a sense, the business has a life of its own). As a separate entity, the corporation exists independent from the shareholders/owners and its employees.

If you are a corporation, your business name is your actual business name, and you would use your Federal EIN Number as your TIN.

Incorporating Advantages: The advantages of incorporating a small business include: Personal asset protection. Both corporations and LLCs (limited liability corporations) allow owners to separate and protect their personal assets. In a properly structured and managed corporation or LLC, owners should have limited liability for business debts and obligations.

Incorporating Disadvantages: The administration costs are more expensive with a corporation than with a partnership or a sole proprietorship. Administration costs include incorporation costs, annual financial statements and annual corporate income tax return. If you are not an accountant, paying someone to do these can be very costly. Losses in an incorporated business can’t be personally claimed. The corporation is taxed first, and if it distributes profits to its owners, they are taxed again on the same money for their personal income taxes — a double taxation.

Limited Liability Corporation: Small businesses can avoid this double-taxation by taking advantage of the options given to a corporation by the states. Some options include incorporating as an S-corporation or filing as a Limited Liability Company (LLC). These options allow the taxable income to flow directly to the shareholders/members without being taxed twice, while at the same time, maintaining the benefits of incorporation. You still end up with a lot of accounting requirements and expenses. You are protected from liability damages incurred by the business, but you can also use your business insurance to cover a lot of this liability protection without all the accounting issues.

If you are a LLC corporation, your business name is your actual business name, and you would use your Federal EIN Number as your TIN.

Other Articles of Interest by Warren Feld:

Should I Set Up My Craft Business On A Marketplace Online?

The Importance of Self-Promotion: Don’t Be Shy

Are You Prepared For When The Reporter Comes A-Calling?

A Fool-Proof Formula For Pricing And Selling Your Jewelry

Designer Connect Profile: Tony Perrin, Jewelry Designer

My Aunt Gert: Illustrating Some Lessons In Business Smarts

Copyrighting Your Pieces: Let’s Not Confuse The Moral With The Legal Issues

Naming Your Business / Naming Your Jewelry

Jewelry Making Materials: Knowing What To Do

To What Extent Should Business Concerns Influence Artistic and Jewelry Design Choices

How Creatives Can Successfully Survive In Business

Getting Started In Business: What You Do First To Make It Official

Thank you. I hope you found this article useful.

Also, check out my website (www.warrenfeldjewelry.com).

Subscribe to my Learn To Bead blog (https://blog.landofodds.com).

Visit Land of Odds online (https://www.landofodds.com)for all your jewelry making supplies.

Enroll in my jewelry design and business of craft video tutorials online. Check our my video tutorials on DOING CRAFT SHOWS and on PRICING AND SELLING YOUR JEWELRY.

Add your name to my email list.

Other Suggested Readings:

David K. William. 20 Books To Read Before You Start Your Own Business, Lifehack,

Backward-Design Is Forward Thinking, (FELD, 2020)

Disciplinary Literacy and Fluency in Design, (FELD, 2020)

Jewelry Design: A Managed Process, (FELD, 2020)

How Creatives Can Successfully Survive In Business, (FELD, 2020)

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