Texas taxes

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Dehn0045

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Ok, so I have decided to finally take the plunge and start selling the things that I make. My plan is to sell on Etsy and through friends/family referrals. My goal is to do about $1k to 2k per year, so pretty small time, but hoping to earn a little bit to justify (to my wife) buying additional tools/materials. When the virus stuff settles down I may do some local shows/markets. But I'm a bit confused about the tax implications.

Sales Tax: I understand that I will need to submit an application with the state for a sales tax ID number, and Etsy will take care of collecting appropriate sales tax, I will just need to collect sales tax from my other sales within TX and then submit - this seems pretty straightforward.

Federal Tax: I plan to operate the business as myself, I don't see a need to set it up as a separate legal entity. I understand that I will need to maintain a log of my income (sales minus expenses) and then I assume that I'll submit this as self employment income, in which case I will pay the income tax, social security and Medicare (both employer and employee portions - assuming this is still a thing when I get going).

State Property Tax: here is where I am most confused. I'm not sure whether I should get a DBA, I assume so because I will set up the Etsy store using a fictitious name, which I will also use in other ways (email, business cards, etc). It's unclear to me if this then means the business is a separate legal entity or if it is still just me but with a different name. Then actually filing/paying the tax - my understanding is that you are to pay property tax (about 2%) on all inventory, tools, raw materials etc over a $500 exemption for inventory. This could obviously add up fast if I consider all of my tools to be part of the business. I'm not sure if I can just allocate a very small percentage (or 0%) of the tools (as long as I don't deduct them as expenses for federal tax) considering that I own them anyway and use them for personal as well. I'm wondering how other TX sellers in a similar boat (small timers) handle this. I could easily wipe out all of my earnings with the property tax, which would obviously be kind of a silly venture.

I'm hoping I can do this all right and still make a few bucks, any advice or links that you used getting started would be much appreciated.
 
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EricRN

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Hi, You light see whether the local bar associations have pro bono attorneys who specialize in small business matters who can help you. I know the DC Bar does, but don't know about Texas. That's probably your safest bet.
 

Mike P

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If you do business under a DBA name only, that is not a separate legal entity. In order for it to be a separate legal entity, I commonly see people set up a single-member LLC using your chosen DBA name (I'm not sure if that's what you mean by 'getting a DBA'). Also, if you do have an accountant, I would talk to them about the IRC Section 183 hobby loss rules because that could impact the reporting of your activity or any potential losses on your tax returns. I definitely recommend following up on Eric's suggestion above in seeing if a local bar association offers some pro bono services to small businesses or speaking to a tax accountant in your area (I'm not sure if you prepare your own returns now or have a CPA you use).
 

Dehn0045

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@Mike P thanks for the info. I guess to be more specific, I am looking at a sole proprietorship with a DBA. My not super opposed to an LLC, but realistically I don't know if I am going to sell anything, I don't want to waste a bunch of time and money setting up the business stuff. I have a CPA, but he is in MN, since TX doesn't have state income tax it has never been an issue. He should be able to help me with the section 183 that you reference, but really where I am hung up is the state Property tax stuff. I think it is fairly unique to have property tax on things like small business inventory, I know in MN we never dealt with it - just sales and income - easy peasy (unless we weren't doing it right back then...). Realistically, if I'm only anticipating $1k in sales, I don't want to drop $200 to talk to a lawyer/accountant to lay it all out for me, that's like 3 montha of profit 🤪 . The pro-bono thing is interesting, but again, it seems like this type of thing should be fairly cookie-cutter (realistically should be below the exemption threshold, but I don't think that is the case).
 

dogcatcher

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First I would pick up a publication by the IRS called the Small Business Tax Guide. Skip the major stuff and look at sole proprietorship info. A DBA helps to deter others from using your chosen business name, do that at the county clerks office. Contact the state comptrollers office, you have a local office in your area. The city, county and state want your personal business property tax, your county appraisal district will help you with that.

Not knowing your other federal tax issues, I would advise you to talk to your tax preparer, and or make a visit to the local IRS office. My 2 cents, stay with the a sole proprietorship, the LLC's the corporate status etc., are just creating more paperwork and reporting requirements. And chances to make an honest mistake that can lead to nightmares with the state and the IRS.
 

donstephan

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Look for local woodworking and woodturning groups, join, and ask your questions there. Likely several try to sell on Etsy and can give advice from experience.
 

Edgar

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I think the simplest thing for your case would be a DBA. The main advantage in such a case as this is that it gives the impression of a real business to your customers, and you should have one if you want to use any name other than your own personal name.

I have 3 DBAs and another small business venture for which I just use my name. You just have to fill out the appropriate schedule with your personal 1040 return, generally a Sch C, but I also need a Sch F for my farming activities.

It's pretty easy in Texas since we don't have a state income tax. Turbo Tax will take care of calculating any payroll taxes, etc that you might need to pay. For that small amount, you probably won't need to make quarterly deposits, but I'm not a CPA, so I don't give tax advice.

You definitely want to stay straight with the State Comptroller on sales taxes.
 

beck3906

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How serious are you in creating a business? Does this include creating a business bank account? If so, your bank will likely require a DBA certificate to establish the account. You get the DBA certificate from the county court clerk. The court clerk will likely notify the property tax section of your DBA application and you'll then get the business property tax requirement.
talk to your tax preparer about what property would be needed for depreciation against your business. This same property will be declared on your business property report. I was told I needed to declare screwdrivers, etc.
 

TonyL

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I am a CPA....have been through this many times myself and for clients. Happy to talk to you, for free of course . I will pm my number. Going down to my shop to finish up a pen (call now or any time ...best after 5:30pm ET). Much success with the business!
 

Dehn0045

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@beck3906 I would say I am moderately serious. I've thought about it several times in the past, but the tax stuff scared me off. Usually when people think about taxes on a business they assume that if the business doesn't make money then it doesn't pay taxes, especially a business that you run out of your house. But the property tax issue is a little counterintuitive. Before I really dive in I want to get a rough idea of how much my property tax bill will be if I don't sell a thing (worst case). The sales tax and income tax are reasonably straightforward, but I don't want to get stung with a $500 or $1000 property tax bill when I'm only shooting for making about that in profit if things go well. I also don't want to spend a bunch of money on accountants/lawyers to set up a business that is intended to make $500 or $1000 a year in profit on $2000 sales. Just trying to do it the right way, I don't mind spending some time learning the rules or filling out forms. Sadly, I think the idea that you need an accountant or lawyer to stay within the bounds of the law is part of the reason the vast majority of people in this situation either give up or do it 'under the table' -- I'd surprised if the majority of sellers on FB aren't paying income and sales tax much less property tax. But I digress. Thanks for the information, sounds crazy that you are expected to declare screwdrivers, but I guess if you get a system down for in/out then after the first time it wouldn't be too bad.

For those that are still with me -- for the property tax it sounds like you are expected to fill out a form every year called "Business Personal Property Rendition". It appears that there are reduced requirements for businesses valued less that $20k, which mine would be (I think). So I guess this is my sticking point, how to fill out the rendition.

Thanks to all for the input and advise this far. I'll keep y'all posted if I'm able to find the other side of all this tax stuff.
 

Dehn0045

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I am a CPA....have been through this many times myself and for clients. Happy to talk to you, for free of course . I will pm my number. Going down to my shop to finish up a pen (call now or any time ...best after 5:30pm ET). Much success with the business!

Extremely generous offer Tony! I'll definitely hit you up before I pull the trigger.
 

dogcatcher

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Go to the county appraisal district and start asking questions about how the personal property tax works. It has been too many years since I dealt with our county's appraisal district, but they were all pretty helpful when I asked questions.

On the sales taxes, make sure you file on time, the penalties in Texas add up in hurry for late filing.
 

sbwertz

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I have done business both as a DBA and as a subchapter S corporation. As a DBA I do not sell items nor collect taxes (computer consultant). When I was reselling items and had a state tax license, I set up a subchapter S corporation.
 
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