I've been creating cigar box guitars for now 5 years, over the last five years I've sold 15, then I stop because I was getting out of interest and no one buying anymore. This year I started back up and and went to my first craft show last week and within the last 2 weeks I have already sold 4 cigar box guitars at shows and 2 online of my store opening and am getting plenty of emails and people wanting to buy more from my online store but I can't keep up which is awesome problem to have. I plan on going to more events specially with the holidays in December I will get a lot sold then.
My question, knowing this, in just 2 weeks of the show I made over cost of everything and then some, that's not all profit because of cost of material, event cost etc. But knowing how well it went do you think I should continue the thought of forming a LLC for my hobby turned business? I would love to turn this into a full time business but don't know if I'm moving to fast. I know in Oklahoma, not sure on other states, if you make over $600 outside of your regular employment then you have to report it to the IRS for taxes at the end of the year, well I've made over that. The pros is that I can report all my costs of materials, mileage costs, etc.
So what do you think, pros and cons? Thanks everyone in advance for your comments.
Replies
Having formed (and dissolved) an LLC for similar tiny-business endeavors, I strongly recommend against forming an LLC for your CBG business. Here are some things to consider
1. It cost money to form an LLC. The state charges an initial fee and there are additional annual fees. This could easily exceed your net profits.
2. As an LLC, you are required to file periodic reports with the state. This can become a pain in the butt, but once you are a legal entity, there is no getting out of it.
3. Dissolving your LLC also costs money and any outstanding fees need to be paid before you are allowed to dissolve. In the meantime, those feels continue to accumulate.
Essentially, for a one-person business, you don't need a formal LLC. You can claim the income on your annual state and federal tax forms as casual or misc income. I do this every year since dissolving the LLC and have no problems.
Forming and operating an LLC is a good bit more complicated than it might first appear and it is definitely not expense free. The only thing an LLC provides that an individual doesn't is some degree of liability protection. The LLC is the legal entity responsible for the actions of the business. This is important in a business with dangers or risks, but might be tough to make hold up for a single person operation.
Do some checking on tax forms and you'll see that you can claim your income as personal income and avoid the hassle of an LLC.
That's my two cents worth