Selling stuff and business options

We're thinking about selling some soaps and hand sewn things which would probably do well in this upcoming season.  I don't anticipate that this will generate large amounts of profits, but hopefully it will be something.

My question is what are the best options in terms of business options when selling things on a small scale?  Do you setup a business with a registered name?  Do you keep records of income and losses?  Do you report that on your taxes? What kind of business do you setup: a sole proprietorship or something else?  Do you charge sales tax?   I guess I'm just curious at what point can you just kind of sell things person to person, and at what point do things need to get formalized to avoid issues with our beloved tax collection agency/agencies.  

Thanks!

I think you answered your own question without really knowing it.

Since you want to sell things, and stay within the law (a very smart move) yet do not envision it being a big revenue stream, just keep it as simple as possible. Sole Proprietorship, cash basis, social security number instead of business ID number, etc.

This is spoken by a poor experience. My wife wanted to make homegoods (furniture) and so I set up an elaborate income/expense program, did the additional paperwork for the sales, and everything, all knowing it would be just a few sales now and then. And in the end we ended up being too busy at farming to make any homegoods at all, and thus it was all a waste of time.

Keep it simple, and if it does grow, grow with it.

Cameron Carter wrote:I guess I'm just curious at what point can you just kind of sell things person to person, and at what point do things need to get formalized to avoid issues with our beloved tax collection agency/agencies.  

Thanks!

I have no personal experience with the legality of setting up a small business, but I observed people in the situation you talked about and researched it off and on for awhile. For a market garden as an example, you don't have to pay any tax if sales are under $6,000 here, but after that you need some sort of basic license(?) I think. Many local mechanics in villages will take the tax off if you pay them in cash, so that's off the books and they probably make $100,000+ gross profit each year so it's not like they are that small. My grandfather talked about selling eggs when he was younger, and how he would sell in villages to small corner store with no problems, but when he went to the larger town down the road to sell to restaurants, he ran into people reporting him eventually for being unregistered.

My friend once made his own "construction company", which he just paid $300, filled out basic paperwork, and that was all there was to creating an incorporated company. He made it for a somewhat dubious reason, but that's besides the point hehe.

Based on all this, I wouldn't worry about legalities as you start-up, but this is just my own opinion. If you were providing a service like starting you own business as an electrician, I'd say to do all the legalities of being registered for insurance reasons, but since this is just selling craft products I see no reason for that. If you are doing business in your local "Zone 1", then I think you'll be fine without having to do all the paperwork - focus on making a quality product and gaining support! A note though, that when doing e-commerce things can be easily tracked via digital payments and mail-orders, it becomes a bit more complicated and you really have to be aware about the limits of how much you can make without the tax buzzards giving you a call.  

Here's a guide about registering an incorporated business in my province to give you an idea, though depending on the country it may be more complicated than that.

Hi Cameron,

All the advice above is good advice. As Jarret says, start selling and see where it goes before you get your tax id #, incorporation,etc.  And if you're making under $25,000, just let whoever prepares your taxes know about the additonal income and your expenses related to it.  You really don't want to get set up in the system until you have a good idea that you'll actually make enough money to warrant it, because if you don't make money for a period of time and you're scheduled to file sales tax, etc., you'll find someone contacting you very quickly with fines for not filing even though you didn't sell anything or make any money.  Better to remain anonymous until you get the $100,000 order from a retailer.  

Some of this stuff varies so much state to state that that should be your first stop.  Find out what is required.  Then determine if you even want to mess with it.  In some cases you'll probably want to do things properly.  In others you might just wing it.

For example, if I was starting a flock of 100 laying hens, intending to sell to individuals and restaurants, I'd go by the book.  But if I had a flock of a dozen and sold surplus eggs to friends from time to time, I'd be less worried about going through all the rigmarole.