How To Start An LLC For Craft Business In 2023?
Craft businesses may be able to benefit from an LLC’s limited liability protection. Using this business structure over a sole proprietorship or S corp can also help you keep your personal and business accounts separate to simplify your business expenses and tax write-offs.
But the process for forming a craft business LLC isn’t always clear. That’s why we created this guide. It covers everything you need to know to turn your crafts business into a limited liability company. So let’s get started.
What Is An LLC For Craft Business?
The word LLC is an acronym that stands for limited liability company. It’s a type of business structure you can use when running a craft business. Alternatives include operating as a sole proprietorship and forming an S corp.
The Benefits And Drawbacks Of Using An LLC For Craft Business
The biggest reason to consider this business structure for your craft business is its liability protection. When you run your business entity as an LLC, your personal assets are protected from creditors in the event that your craft business ever has to declare bankruptcy. There are also LLC tax benefits, which we cover in the next section.
The main drawback of using an LLC as a business owner is the cost of doing so. You’ll need to submit an LLC operating agreement and pay the fees associated with it. These can be high in some states. There are also potentially yearly ongoing fees to consider.
The bottom line is whether you sell crafts as just a hobby or it’s your primary personal income source; craft businesses may benefit from filing paperwork with the local government and forming an LLC.
What Are The Tax Benefits For An LLC Craft Business?
LLC owners may enjoy several tax benefits in addition to the limited liability protection offered by this business entity. That being said, the benefits for tax purposes depend on the state where the LLC owner and LLC member operate. This is where you would pay payroll taxes and submit legal documents.
All LLCs benefit from functioning as a pass-through entity, which helps you pay federal taxes while avoiding double taxation and protecting your personal liability. You may also be able to operate with a fictitious business name, which could offer more tax benefits for your assumed business name and protect your anonymity.
The bottom line is that the sales tax and income tax benefits for your craft business LLC will come down to the state that it operates in. But most will have more favorable income and sales tax regulations for craft business LLCs than they do for a craft business sole proprietorship.
How To Form An LLC For An Craft Business? Steps By Steps
If you’re the sole owner of your business and are interested in liability protection, becoming a separate legal entity could be a good idea. If you want to form an LLC, the process can vary by state legal requirements and tax laws. But it will often look like this.
Research your state’s paperwork requirements
The first step is figuring out what type of paperwork your state needs to receive in order to turn your sole proprietorship into an LLC. You can usually find that information on your secretary of state’s website.
You will almost always need to fill out an operating agreement. But you may also need to submit things like a business license, sales tax license, or employer identification number at the same time. If you sell crafts through a store and hire employees, you may also need to report information about general liability insurance, self-employment taxes, and commercial property insurance, among other details.
Fill out the right forms and pay the filing fees
Once you’ve identified the forms you need to fill out, simply complete them for your business name and pay the filing fees.
Prepare to run your craft business as an LLC
It may take your state several weeks to get back to you. Now is a good time to start preparing your general partnership with a business plan, employer identification number (EIN), marketing strategy, and sales tax ID.
Respond to any modification requests you may receive from the state
Your state may request further information after receiving your application to turn a sole proprietorship into an LLC. Be sure to respond to this in a timely manner to avoid delays with procuring your business license, setting up your business bank account, or losing your business name and business license. This can also happen to crafts businesses that need to register for things like a home occupation permit or general partnership independent contractor status and forget to do so.
Top 2 LLC Services
If you want to focus on craft fairs and farmers market events instead of limited liability protection or operating as a sole proprietor, you can hire a business formation service. These help you achieve general liability protection and figure out if you need to register elsewhere so you can focus on craft supplies and your business plan. Here are two of our favorite options.
|ZenBusiness||Northwest Registered Agent|
|Award||Best Overall||Most Affordable|
|Price||$0 – $349 + state filing fees||$0 – $225 + state filing fees|
|Detail||Read Review||Read Review|
ZenBusiness will help you protect your personal assets by guiding you through the entire LLC formation process. They can also help you with your sales tax obligations, business license questions, and even things like business assets and business loans. Whether you have business liabilities you’re unsure about or you want to make sure pay tax as little as possible, this is a good partner to have.
Northwest Registered Agent
Northwest is another company that can help you protect your personal assets by guiding you through the process for forming an LLC, choosing a business name, and setting up any business license you may need. The company is a bit cheaper, which can be good for your bank account, but also offers slightly fewer services, which could be an issue if you want in-depth support with self-employment tax, general liability insurance, company debts, or federal tax. Still, you can’t go wrong either way.
Tips To Maximize Benefits For An LLC For Craft Business
Forming an LLC is easy enough to do on your own. But if you want extra support with tricky things like applying for a business license or optimizing your tax situation, hiring a professional service provider can be a good idea. They can help you get the business license you need to tour more craft fairs while keeping you non-personally liable for any future financial problems your business may experience.
Read More: Best Registered Agent Services 2023
The bottom line is that forming an LLC can be a good move if you want limited liability protection for your company. The process for that will typically look like what we described throughout this article. But it can vary from state to state, so be sure to research requirements in your area to learn more.
Frequently Asked Questions (FAQs)
An LLC is a type of business structure. It’s an alternative to operating as a sole proprietorship or corporation that offers a unique set of benefits and potential drawbacks.
You need to fill out the paperwork that your state requests, typically an operating agreement and articles of organization. This comes with a filing fee in most states.
Forming an LLC helps you avoid personal financial liability while running your craft business. It can also help you pay less in taxes. But there may be annual costs in your state.
The answer depends on the state you apply to become an LLC in, as each territory has its own filing fees and ongoing annual reporting fees. But you can often expect to pay around $100 in initial filing fees and then an ongoing reporting fee of around the same amount.
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