Thursday, January 15, 2009

Got that Tax ID number yet?

In the past month or so there has been a rash of inquiries from would-be entrepreneurs about the requirements to open a wholesale account with Wool2Dye4. I thought I would list them, and then see if I can interest the right people into securing a Federal Tax ID number. First, to the requirements:
-Business Name
-Tax ID Number
-Committment to ten pound minimum weight on order

Now, this ten pounds may be spread out among several yarns, and the ten pounds does not have to be of each individual yarn or spinning fiber. That is, the entire order must weigh ten pounds.

That question, though, of the tax id number is the one which stumps folks. It is free and easy to get a tax id number for your home-based business (or any business, of course), and it can be done over the internet at www.irs.gov. Just fill out the application for the SS-4 form, Employer ID. Even though you may not intend to maintain a payroll, this is where you get a Federal Tax ID number.

Just having a Federal Tax ID number will not affect your income taxes. Most of my customers are part-time dyers, or work-at-home clients and operate as a sole proprietor. That is, they do not have a registered corporation or limited partnership, but are operating the most simple form of business, the sole proprietorship. There is only one owner in this form of business ... the sole proprietor. What it immediately lends to your business is the sense of permanence. You gain credibility when you are more organized and look more like a business, even though you may be working in space borrowed from the family living quarters. If you have a Federal Tax ID when you apply for discounts with your suppliers, you are more credible. Period.

Most people do not realize that simply having this Tax ID number (also called EIN, or Employer's Identification Number), will not affect the taxes you pay on your income tax. You probably will not make a profit for several years anyway, so keep track of your business expenses (cost of goods sold, shipping, materials, assistants, advertising, etc.) and of your income (sales) and you will get a quick picture of where you stand. Take a count of the value of the inventory expressed in your cost, and also any outstanding invoices at the end of the year to get a complete picture of profit/loss.

The value of having the number is the perceived credibility it lends to your business.

If in doubt, then go find a business advisor and ask them. There is a federal small business assistance program in every state, and it's called the Small Business Assistance Center. (I used to direct one here in Virginia!) Another place to go for advice is the local chapter of SCORE, the US Small Business Administration's office of retired executives. Both are free, and both are great places to go and talk about the structure, operation, forecasts, trends, future growth, profit, etc. of your business. Don't forget that many, many businesses began in someone's spare room and grew into viable and profitable enterprises. And, it could be yours, next!

7 comments:

Knit Witch said...

We are supposed to be making a profit?? Wait........I missed that day of class!!

Haha! Seriously, the tax ID number is TOTALLY worth the trouble - it is so easy to get.

Jadielady said...

Thank you so much for posting this! I am actually going next week to get my business license, and was then going to contact you about possibly making an order.
Perfect timing!

Dave Daniels said...

Good post, Sheila. Another good thing to look into is a local business license. Every city/town/county has an admin office. Even if you're selling only online, having a registered business license makes sense.

Lotusknits said...

This is so helpful, since I was of the ones to contact you. I actually just wrote a post on my blog about how incredibly helpful you have been. My Mom's a CPA and had me all confused with her tax jargen. Thanks for the link too. It is scary when you start thinking about the possible consiquences to started a registered business, but you have given me courage. Much heartfelt thanks! - Julie

Mestina said...

Thank you for sharing this information! I have recently started dying and was thinking about dying fiber to sell. This is definitely perfect timing.

Friender said...

Hey! Thanks for this info. It's very helpful. I'm in the process of getting an EIN and was wondering if you have wholesale pricing available? Thanks!

Sheila Wool2Dye4 said...

From Sheila: If you are interested in wholesale pricing, please eMail me... Yarnie@wool2dye4.com