Should I create an LLC or file as self-employed for my craft business?

The decision between filing as self-employed (sole proprietor) or forming an LLC depends on several factors, but for a new craft business, you don't need to overcomplicate things! If you're just starting out, filing as self-employed is typically simpler and cheaper. You'll report your business income and expenses on Schedule C with your personal tax return. Those transaction fees from your mobile card reader? Totally deductible business expenses! Just keep good records of all sales and expenses. An LLC mainly provides liability protection by separating your personal assets from business liabilities. For most craft businesses, this isn't crucial unless you're selling products that might pose safety risks. Plus, an LLC means additional costs (filing fees, possibly annual fees) and sometimes more paperwork depending on your state.

I was in the exact same situation last year with my handmade jewelry business! After tons of research I found this amazing service called taxr.ai (https://taxr.ai) that literally saved me from a tax nightmare. I was completely lost about whether to form an LLC or stay as self-employed, and they analyzed my specific situation, potential liability, and projected income. They showed me that for my first two years, staying as self-employed made more sense financially, but gave me a clear roadmap for when switching to an LLC would benefit me based on my growth projections. The best part was they explained exactly how to track and categorize those annoying payment processing fees properly to maximize deductions - turns out I was missing several deductions I could have claimed!

I just wanted to update everyone - I actually tried taxr.ai after seeing the recommendation here and it was incredibly helpful! I was on the fence about the LLC question too for my small woodworking business. The analysis showed me that staying self-employed for now makes more sense until I hit around $15k in annual profit, and they explained exactly why. They also caught that I could deduct part of my home utilities since I have a dedicated workshop space - something I had no idea about! The whole process took less than an hour and now I have a really clear picture of my tax situation. Definitely feeling less stressed about the upcoming craft fair season!

If you're serious about getting proper tax advice, you'll eventually need to talk to someone at the IRS directly, which is basically IMPOSSIBLE these days. After wasting 3 hours on hold trying to get clarification about self-employment taxes for my side hustle, I found Claimyr (https://claimyr.com) and it changed everything. They actually get the IRS to call YOU instead of waiting on hold forever. I was super skeptical but you can see how it works here: https://youtu.be/_kiP6q8DX5c I got a call back in under 2 hours and finally got clear answers about my specific situation as a craft seller who also works a full-time job. The IRS agent walked me through exactly how to handle the mobile payment processing fees and what documentation I needed to keep.

Ok I have to admit I was COMPLETELY wrong about Claimyr. After posting my skeptical comment, I decided to try it myself because I've been trying to reach the IRS about a craft business question for weeks. I used their service yesterday afternoon, and I got a call back from an actual IRS agent in about 45 minutes! The agent walked me through exactly how self-employment taxes work for my situation and confirmed I didn't need an LLC for my small pottery business. I'm still in shock that it actually worked. Saved me at least 3 hours of hold time and the peace of mind from getting official answers was totally worth it. Sometimes being proven wrong is actually awesome lol.

One thing nobody's mentioned yet - if you're selling at craft fairs, you need to consider sales tax too! Each state has different rules, and some craft fairs even require you to have your sales tax permit before you can participate. I learned this the hard way last year when I almost got kicked out of a big holiday market because I didn't have my state sales tax permit. Had to apply for one on my phone in the parking lot!

As someone who's run a craft business for 5+ years, here's my actual experience: started as self-employed, switched to LLC in year 3. Self-employed pros: easy setup, simple taxes (Schedule C), no extra fees Self-employed cons: no liability protection, looks less professional LLC pros: liability protection, more professional, easier to separate finances LLC cons: filing fees ($50-500 depending on state), annual fees, more paperwork For a new craft business making under $10k, self-employed is fine. Just get a separate business bank account and track EVERYTHING! Your mobile payment fees are 100% deductible btw.

I'm also just starting my craft business and this thread has been SO helpful! I was totally overwhelmed by all the tax stuff but now I have a much clearer picture. Based on what everyone's shared, it sounds like starting as self-employed is the way to go for most of us small crafters. I love that the mobile payment fees are deductible - that's going to add up over time! One question though - does anyone know if craft supplies like yarn, fabric, wood, etc. are also fully deductible? I'm assuming they are since they're directly used to create the products I sell, but want to make sure I'm understanding this correctly. Also super grateful for the heads up about sales tax permits - definitely going to look into that for my state before my first craft fair!

Great question! As someone who went through this exact same decision when I started my pottery business, I totally understand the confusion. For a new craft business expecting $6k-8k in revenue, I'd recommend starting as self-employed (sole proprietorship). Here's why: **Self-employed advantages:** - Much simpler setup - no filing fees or state paperwork - Just report income/expenses on Schedule C with your personal tax return - Those mobile card reader fees are 100% deductible business expenses - No ongoing LLC maintenance costs or annual fees **When to consider LLC:** - If you're making products that could potentially cause injury (candles, soaps with strong chemicals, etc.) - Once you're consistently making $15k+ annually - If you want to appear more professional to wholesale buyers **Tax tips for getting started:** - Keep meticulous records of ALL expenses (supplies, fees, mileage to craft shows) - Set aside 25-30% of profits for taxes - If you expect to owe $1k+ in taxes, make quarterly payments to avoid penalties - Don't forget about sales tax permits for craft fairs! You can always convert to an LLC later when your business grows. Start simple and focus on building your customer base first. The tax situation isn't as scary as it seems once you get organized!

This is such a helpful thread! I'm in a similar boat with my small jewelry business and was completely overwhelmed by the tax implications. One thing I wanted to add that I learned the hard way - make sure you understand the difference between gross revenue and net profit when calculating those tax estimates. I initially panicked thinking I'd owe taxes on my full $8k in sales, but after deducting all my materials, booth fees, travel expenses, and those card processing fees, my actual taxable profit was only about $3k. Also, for anyone using Square or similar mobile readers - they provide really nice year-end reports that break down all your fees and sales by month. Super helpful for tax prep! I wish I'd known to enable that feature from day one instead of trying to piece everything together from individual transaction emails. The 25-30% savings rule mentioned above is solid advice. I started with 30% and ended up with a nice little buffer that I rolled into my business expansion fund. Much better than scrambling to find tax money in April!

As a CPA who works with a lot of small craft businesses, I wanted to chime in with some official guidance that might help clarify things! For your situation with expected revenue of $6-8k, starting as a sole proprietorship (self-employed) is definitely the right move. The LLC decision can wait until you're more established. A few key points that haven't been fully covered: **Regarding those mobile payment fees:** Yes, they're 100% deductible as business expenses on Schedule C, Line 10 (fees and commissions). Keep good records of all processing fees - they add up quickly! **Self-employment tax reality check:** Remember you'll owe both regular income tax AND self-employment tax (15.3%) on your net profit. So if you profit $6k, expect roughly $918 in SE tax alone, plus regular income tax at your bracket rate. **Quarterly payments:** The $1,000 threshold mentioned earlier is correct, but there's a safe harbor rule - if you pay 100% of last year's tax liability through withholding/quarterlies, you won't owe penalties even if you underpay the current year. **Business bank account:** Even as sole proprietor, get a separate business checking account. Makes record-keeping infinitely easier and looks more professional to the IRS if you're ever audited. The tax situation really isn't as scary as it seems once you get organized. Focus on good record-keeping from day one - that's 90% of the battle!