Questions for anyone doing business in a state that has a Cottage Food law.
1.) Do you do business under a company name?
2.) Do you have a E.I.N (tax #)#?
-If you do, are you able to write off certain things i.e.; mixes, sugar, "start up" machines (mixer's), cake supplies (cake boards, fanci foil, color paste) on your taxes?
Texas just got a Cottage Food law that will take effect September 1st. I went to a meeting hosted by the City about starting up a small business. The Cottage Food law states you can run from your home and not make over $50,000.
I'm trying to figure out if getting a company name and E.I.N is worth it to me. Any help is appreciated.
You can do business under your own name if you wish, but you'll probably want to file for your own business name. Filing for an EIN is also a good idea, otherwise your business will be identified by your social security number. If you want to protect your personal assets from liability from business transactions, you should look into creating an LLC (limited liability company), or at least purchasing business liability insurance.
Whether you have a separate business name or not, you are usually able to write off both startup and ongoing operating expenses against any income you receive. If you are operating as a true business instead of a hobby, you can typically deduct net losses against other income, while hobby expenses can only be used to reduce taxable income for that hobby.
If you will be handling your own taxes I recommend buying an accounting program like QuickBooks and using it to record income and expenses, it makes filing income tax returns for the business a piece of cake. No pun intended.
there is another thread about the tx cottage law but i have no idea how to attach a link but the name of the topic is:
Future Texas decorators: help on setting up
But let me try to do this if not just look for it in this same forum
well what if we get the tax id now and we start buying stuff to be ready by sept. 1st. can we deduct that on our taxes even if its not legal yet, and what if we spend more during the year than what we make how does that work? Thank you for your question
I would recommend finding a reputable CPA in your area and calling them for a short consultation appointment.
They will be able to advise you on the financial implications of all your organization options (Corporation, S-Corporation, LLC, Sole Proprietor, etc). Also they can help you determine what will or will not be deductible for tax purposes, especially because there are some tricky things when working out of your home.
Applying for an EIN # is easy and free on the IRS website, but you will have to decide what type of entity you want to be and set that up before you apply.
well what if we get the tax id now and we start buying stuff to be ready by sept. 1st. can we deduct that on our taxes even if its not legal yet, and what if we spend more during the year than what we make how does that work?
In most cases you should be able to deduct up to $10,000 in startup costs against revenue collected in the same year, see info in below link:
If you spend more than you earn in a year for your business, you can usually deduct the net loss against other income. For example, if you make $50K from your primary job and have a $5K loss from your business, you would only have to pay income tax on $45K (less any other deductions). More info about reporting business income and expenses below:
thanks for the info guys
Thanks every one. I'll go look into the link DALIG.
I do have a person in mind. He used to work for the IRS and he comes highly recommended by two of my friends who have their own business.