Was reading the fall of reverb thread and thought I'd start a separate one here. I know some of you all sell your builds and was just wondering how you go about doing taxes. Are you a sole proprietorship or a LLC? Are you able to write off parts expenses? Do you have to pay self-employment taxes and stuff additionally? At what point of profit is it worth doing rather than just including every dollar made as additional income on the 1040? Feel free to PM me if you'd rather discuss there. Thanks!
Sole proprietorship / LLC ?
- Thread starter ianmarks
- Start date
Harry Klippton
Not Interested
I have an LLC but for a different business and just the cost of having an LLC and all the other affiliated licensing costs several hundred dollars a year, not to mention the time it takes to file all the required paperwork, and the tax reporting. even though my business is tax exempt, we still have to do all the reporting
BuddytheReow
Moderator
I agree with this. If you want to sell, then sell. Just keep your sales under $600 a year and you don't have to report it. IMO you should sell a build you don't really want to help finance one that you do.
Matmosphere
Well-known member
This ^^
vigilante398
Authorized Vendor
I think I was the main person that brought up LLC's on the other thread, so I guess I can chime in and give more details on my scenario.
I've been building pedals for several years and started selling them fairly early, and when I started keeping track of expenses versus income I was generally coming out a little ahead, I think I averaged $500-1000 profit or so per year after deducting parts. Most of it was cash as I primarily dealt locally, so as a starving college student with very little income anyway I don't think I even declared it.
About a year and a half ago I got a lucky break and found a niche, and I started selling 20 pedals a month, eventually increasing to 40 pedals a month. My income from pedals is almost as much as my income from my day job. My sister-in-law is an accountant and she walked me through the process of setting up an LLC. Depending on what state you live in (I'm in Illinois) it is usually affordable and easy to set up and run, I think I paid about $200 to set up the LLC and I just paid my renewal fee of $140 for the year a couple weeks ago.
Components used in building pedals that are being sold are a clear write-off, that is a direct business expense. Tools purchased directly for the purpose of building are also a clear business expense. Last year I bought a bigger CNC machine so I could mill more enclosures at once. Business expense. I also bought a UV printer so I can print my own enclosures. Business expense. I got new workbenches and shelves so I had room to build and organize everything. Business expenses. This year I got a new powdercoating setup to replace my cheaper old one. Business expense.
There are other things that she had me deduct last year that were gray areas, like recording equipment, guitars, and amps. I use them when I record demos to improve the quality of my demos, but obviously they are used outside of that purpose as well, so consult an accountant on that one.
As mentioned above, for the vast majority of people selling pedals as a hobby there isn't enough money moving to justify setting up a separate entity for taxes. I've given you my story, and if you're still thinking it might be worth it sit down with an accountant to get their professional opinion. If you don't know an accountant personally it would absolutely be worth it to pay for a consultation, and obviously you can write that fee off as a business expense
I hope this helps, and I'd be happy to answer any other questions.
I've been building pedals for several years and started selling them fairly early, and when I started keeping track of expenses versus income I was generally coming out a little ahead, I think I averaged $500-1000 profit or so per year after deducting parts. Most of it was cash as I primarily dealt locally, so as a starving college student with very little income anyway I don't think I even declared it.
About a year and a half ago I got a lucky break and found a niche, and I started selling 20 pedals a month, eventually increasing to 40 pedals a month. My income from pedals is almost as much as my income from my day job. My sister-in-law is an accountant and she walked me through the process of setting up an LLC. Depending on what state you live in (I'm in Illinois) it is usually affordable and easy to set up and run, I think I paid about $200 to set up the LLC and I just paid my renewal fee of $140 for the year a couple weeks ago.
Components used in building pedals that are being sold are a clear write-off, that is a direct business expense. Tools purchased directly for the purpose of building are also a clear business expense. Last year I bought a bigger CNC machine so I could mill more enclosures at once. Business expense. I also bought a UV printer so I can print my own enclosures. Business expense. I got new workbenches and shelves so I had room to build and organize everything. Business expenses. This year I got a new powdercoating setup to replace my cheaper old one. Business expense.
There are other things that she had me deduct last year that were gray areas, like recording equipment, guitars, and amps. I use them when I record demos to improve the quality of my demos, but obviously they are used outside of that purpose as well, so consult an accountant on that one.
As mentioned above, for the vast majority of people selling pedals as a hobby there isn't enough money moving to justify setting up a separate entity for taxes. I've given you my story, and if you're still thinking it might be worth it sit down with an accountant to get their professional opinion. If you don't know an accountant personally it would absolutely be worth it to pay for a consultation, and obviously you can write that fee off as a business expense
I hope this helps, and I'd be happy to answer any other questions.
vigilante398
Authorized Vendor
Nope, I've been informed that I'm not a "maker" anymore, I'm now a "manufacturer"
vigilante398
Authorized Vendor
It's a fine line for sure, wanting to keep it low-stress enough that you still enjoy it, but profitable enough that it's worth the time you spend on it. I was briefly tempted to quit my day job and do pedals full time, but I know it would just lead to me hating it because it would feel like a job. Now I think of it as a fun way to pay for things. There's no way in hell my wife would have let me buy $5k in machines to build pedals if I wasn't building and selling a ton of pedals. I still build for myself, and I'm able to build really cool stuff because my hobby budget is a lot bigger than it used to be.
I like the extra income from doing something I would be doing anyway, but if it ever starts feeling like a job I'm quitting.
Cucurbitam0schata
Well-known member
@vigilante398 - you've just illustrated why there are so many break-even and in-the-red US farms with new pick-ups and tractors.
Matmosphere
Well-known member
I mean, as long as you don’t share any off it with your employees, but why would anyone do that?
Mentaltossflycoon
Well-known member
I doubt you're rich enough to receive a bail out from the US gov.
jjjimi84
Well-known member
I am rich in love and guitar pedals, maybe the 1% could learn something from me.
Vigilante was kind enough to reach out and talk to me about odds and ends - thanks, man! Still on the fence, but need and want to make the decision for the new year.
What do you all think about liability? Vigilante deals with a bit higher voltages in his tube pedals, but can't see the standard guitar pedal being a liability where I could be sued and my personal assets be targeted, but welive in strange times!
What do you all think about liability? Vigilante deals with a bit higher voltages in his tube pedals, but can't see the standard guitar pedal being a liability where I could be sued and my personal assets be targeted, but welive in strange times!
PapaBear
Well-known member
The American Way!!