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Posted 29 December 2004 - 10:14 PM
http://www.taxlinks....evrul85-152.htm is the link for the Federal Excise Tax imposed upon fishing lure manufacturers. If you don't pay your excise tax Uncle sam will take you to court, find you guilty and close your business down until you pay your excise tax and the financial penalties assessed by the court . There are IRS agents that search for online sites that are selling items and do not pay their excise tax. Believe me everyone here on this site if you are selling and not paying your excise tax Uncle Sam will catch up to you. If you do not have the capital to pay your penalties Uncle Sam has the right to sieze any assets that pertained to manufacturing. So before you get in to deep, contact an attorney get incorporated as a Business with a Fed. Tax ID # and contact an accountant that is familiar with the Exise Tax and have him/her file your taxes. These are the reasons that I charge 20.00 per bait. I am actually think of jacking my prices up to $25.00 per bait . If you can charge $9.99 a bait pay your state and federal taxes and you Excise Tax God Bless ya. If you are making a quality product that catches fish then there are buyers that will pay your price. Sorry about the long post but I know of people who have lost their business because they either thought they did not fall into the manufacturer category, were ignorant of the law, or were just taking a shortcut.
Posted 29 December 2004 - 10:16 PM
Thats one of the Items that shot me down! either go all out or in trouble for Mfc. lures with the taxation!. this can make you or drive the cost up and then break you. You'll need a registerd name to get out and I'm not talking a pat# when I say product name and company name protection. You don't want someone selling your name on the lure or calling your lure by somone else's protected name. > If i make a copy of a Zarra Spook> I can't use that name and I must make a small change in the lure. So you got trade marks and copy rights to think about. Its not easy! this is why they look for sponsors and to get reconized for a sponsor its a long road starting in your own backyard. Also with a tax # > you'll get big breaks from suppliers on line. Some only deal with companies that are registerd. GOOD LUCK!
Posted 29 December 2004 - 11:34 PM
BlackJack is right, the tax concern is a valid one and I have been keeping careful records of all my sales in this past year to deal with it. If your baits are selling at $10.00, leave the price there, why come down? There are mass production bait such as Lucky Craft that are more than that each...if anything I would go up!
Regarding a business name it's no big deal, register your name with the state in which you are living in, think it was 50 dollars here in Oregon. As far as a federal tax ID#, it's my understanding you use your SS# unless you are hiring employees. I see no reason to copyright your business name or logo as there really isn't any big advantage for someone else to use it anyway. And the fact that you are using your company name now and can likely prove that in court provides you with some protection. Patents? Forget it, every possible concept you can think of has a dozen patents covering it, save your money.
Posted 30 December 2004 - 09:23 AM
Riverman is right on! If you have any questions take advantage of the taxes you already pay and visit a small business administration office or at least call or visit a their web site. If you are a veteran or handicapped, there are even special loans and other sevices available to you through SBA. Don't let others make you give up your dream. Only you can fulfill it or tell when it isn't going to work. Good luck.
Posted 30 December 2004 - 11:01 AM
Just curious, are you saying that you have put out 800 baits at some stage in one weeks time? 800 pieces.... At 10 dollars a piece that is 8 grand. Take out the say 1000 cost as you have spec'd and that is enough profit to keep most happy for a month. Just on the initial 800 pieces. Can you start 800 baits a week? Way beyond me......If you could start 800 a week assuming you could sell this many and continue every week forward you are talking about clearing over a quarter million a year. Or have i misunderstood something? Of course you would have to pay the taxes...but even at that........
Posted 30 December 2004 - 11:49 AM
Just curious guys...what is the % rate of that excise tax??? Anybody??
Posted 30 December 2004 - 01:11 PM
I belive that would be 10% of Retail Cost. Someone correct me if I am wrong..
Posted 30 December 2004 - 01:41 PM
Thats 10% of the cost you sell them for...if you sell a lure wholesale for 10.00 it's 1.00 if you sell it direct to a customer it for 12.00...it's a 1.20
Posted 30 December 2004 - 01:50 PM
Does this apply to anyone selling baits or is there an amount money or quantity you have to sale to fall into this category :
Posted 30 December 2004 - 02:22 PM
This is a manufacture's excise tax - stemming from the use of raw materials. If you make a lure and sell it, you are responsible for the tax.
But, there's two loopholes in the tax:
1) if you bought your supplies and don't have a tax number on file with your supplier - you paid the tax. Your supplier is now responsible to file for it, not you. Now, if you purchased with a # on file - you received a 10% discount from your supplier, which is the excise tax that you are now responsible for.
2) In order to file for the tax, you fill out Form 720. You must have an EIN# (Employee Identification Number), this means you have employees for this form. As a sole proprietor you don't have employees, which means you don't need an EIN, therfore can't fill out a Form 720. See the catch?
It's easier to let your suppliers charge you the 10% - it's less hassle for you, and a wash when it comes to net $$$.
Posted 30 December 2004 - 02:42 PM
what if your are buying everything at retail price like hobby stores, lowes, ect.
Posted 30 December 2004 - 02:48 PM
Edit - bad info.
Made a call to the IRS to get my facts straight - I was off.
The 10% excise tax is the responsibility of the manufacture of the raw material, the seller of the raw material, and the seller of the end product made with the raw material. In other words, if you are selling something with a hook on it you you need to be filing for the excise tax - no matter where the supplies came from.
You file Form 637 to get an exemption for this tax from your supplier.
As far as being a sole proprietor, it's a mess. What I thought was a loophole has closed - You must file a Form 720 if you are selling fishing equipment. Since this form requires an EIN#, you must apply for an EIN# even though you have no employees. Then since you have a # on file under Form 720, you can file Form 637 for an exemption. Monthly statements need to be filed, etc.
Clear as mud?
Sorry if I caused any confusion from earlier posts, this information was straight from the source.
Posted 30 December 2004 - 08:58 PM
This is making me dizzy! WOW! now this is get-in intresting! Someone might add this all to the site as too "how to go into small business from a hobby stand point". Ready to take notes!!!
Posted 30 December 2004 - 09:02 PM
Hey Guy's, When paying excise taxes, be careful not to overpay. The tax is 10% of the sale price, BUT, if you have paid excise tax on the components you purchased to make your lures, that amount can be deducted from what you owe. The excise taxes are paid quarterly by filing the form 720. There are several components purchased for making lures that do not have excise taxes tacked on , such as beads and feathers. There are other items as well. If you have a bait that sells for $12.95, you do not pay 10% of that amount. What you do, is divide $12.95 by 1.1. This gives you a base amount to start from. Take the base amount and multiply it by.1 to come up with the tax owed. $12.95Divided bt 1.1 is $11.77 This is the base amount.Multiply $11.77 times .1 and the tax owed on a bait that is sold for $12.95 is $1.18 If you do it by a flat 10% , you are paying tax on the tax. If you paid $1.00 for the components to make a bait and paid tax on that amount and sold the bait for $2.00 , all you owe is the difference. Just be sure to keep good records,because at some point being audited is a given. Joe
Posted 31 December 2004 - 01:32 AM
If you are not the manufacturer or importer you dont have to pay as much. For instance if your brother is the manufacturer and sells you a lure for $1 and you sell it to the costomers or stores you become the distributor. so say you sell the bait for $10. Instead of you having to pay $1 in exise tax your brother is responsible for paying the tax on $1 witch is a dime. So if you get two business liscenses and have a partner (or brother) own the manufacturing co. and you become the distrubutor you can save a lot of money if you sell a lot of baits. If this is just a hobby than its probably not worth the trouble.
Posted 31 December 2004 - 04:49 AM
Wow! Thanks for all the great info. I learned a lot and aside from the headache, I think I'm too ignorant of tax laws let alone how to run a business so it is probably a good thing lure making (for now) is just a hobby.
If I ever were able to get to the point of going into business, I think I would try to also reach those "wal mart" and "BPS/Cabela" shoppers too by approaching those big boys with my wares and negotiate some agreement in which I would get a residual percentage of the profits made and they would produce and market my lures. Anyway, just an amateur's thoughts. Thanks!
Posted 31 December 2004 - 08:28 AM
RIVERMAN! about what you said> If its not important for such Items like registration of a product such as a logo or product name > Then isen't true that if you are a hobby making lure person ,selling X number of lures a year unprotected or un reported to the state as a business > that I (lets say I am a registerd lure maker/mfc) could take your lure or lure styles and mfc. them and claim them as mine and turn around and " S U E " you! for using my design or selling my product under the table ? even thow we know its wrong but we also know some people will do anything to make a buck. What about someone who says they are injured due to your lure ? The list can go on and on. I'm just courious how many realize just how tough it can be! I'm hearing it all now on this site. This is why I never have gone beyond making and testing.
Posted 31 December 2004 - 09:19 AM
You do bring up some good questions. I have my business registered with the State but see no reason to "copyright" my logo or lure designs. I'm a biologist, not an accountant but this is how I see it.
As far as someone "stealing" my designs, they can do that anytime they want to anyway. None of the lures I am making are "unique" therefore I see no reason to copyright them...yes they are my design but they are simply modifications to approaches that have been used for decades and longer. Now if someone were to take my logo and I felt strongly enough about protecting it I could show that I was using that "logo" at a date prior to when they were which will give me some protection. If someone were to hurt themselves on my bait, well they could do that whether or not I have my logo and designs copyrighted and not only that but if they were to seek legal compensation from my business for that injury they would find there is nothing to sue for....other than a few wood bodies, some paint and an airbrush that clogs alot. It may be that I could also be held "personally responsible" but I have been advised that this is not possible so long as I am selling the baits under my business name.
Posted 31 December 2004 - 09:28 AM
Good thinking riverman. I got a few more questions for you but I'll contact you insted of wasting all this B.B. space. Thanks for the speedy response> looks like someone else isen't fishing today besides myself.