What do I need to do to legally sell soap on Etsy?
December 3, 2018 9:30 AM Subscribe
I'm based in Washington DC, and I'm trying to figure out if I need a general business license.
I know I'll need a sales tax license and insurance to sell, but I can't find a definitive answer about whether or not I need a general business license (or anything else for the matter). The cost for a GBL, on top of insurance, would be around $600. I'm really just looking to sell in order to clear out extra soap and pay for my hobby. I don't even know if I'll be able to sell $600 in a year, so I'm hesitant to invest that much money. Starting out, I'd like to keep this as simple as possible. I'd love to hear any advice you have! Thank you!
I know I'll need a sales tax license and insurance to sell, but I can't find a definitive answer about whether or not I need a general business license (or anything else for the matter). The cost for a GBL, on top of insurance, would be around $600. I'm really just looking to sell in order to clear out extra soap and pay for my hobby. I don't even know if I'll be able to sell $600 in a year, so I'm hesitant to invest that much money. Starting out, I'd like to keep this as simple as possible. I'd love to hear any advice you have! Thank you!
Response by poster: Thank you, Kadin! That's incredibly useful information. I think claiming any income as hobby income is going to be the way for me to go for now. I'm not saying I wouldn't *love* to turn a profit, but really, I'd just like to keep my hobby from biting into my other income for now. And you're right: the cost a GBL is $325 - I meant the cost of that in addition to insurance, which also runs around $300.
posted by moxie_milquetoast at 1:54 PM on December 3, 2018
posted by moxie_milquetoast at 1:54 PM on December 3, 2018
So I've owned several small businesses in various states, and I have made my hobbies into online businesses since I was old enough to type, and I think you are way overthinking this.
Business licenses are, generally, only required if you have a physical location open to the public and/or employees. The rules vary obviously but they are not for hobbyists selling some stuff on the internet. Your locality will surely take your money if you want one though.
I cannot imagine what you would need insurance for to sell things on Etsy, what do you think your liability is? There are no "requirements" to have insurance to be in business, unless you think there is a serious risk your soap will burn down someone's house or something. I personally only carry liability insurance in my line of work because I hire subcontractors, and if someone hurts themselves on my job I would be liable. I don't see how that's a concern with Etsy soap.
None of this has anything to do with your taxes if it's a hobby, you can't deduct hobby expenses as Kadin points out. At the scale you are talking about, you wouldn't come anywhere near the standard deduction for itemizations so this is a moot point even if it was a business.
Speaking of the IRS, $600 in income is actually the cut off for filing a 1099. So in other words: the IRS can't even be bothered to deal with stuff involving the amount of money you are talking about here.
If you want to do this by the book, the only thing you really need is a sales tax license for in-state sales. Those are free everywhere I've lived but it's a lot of paperwork and deadlines. Your taxes probably have an honor-system line item for "sales tax for internet purchases", personally I would just remit it that way if you even make any in-state sales.
IMO you only need to think about this stuff if you set up a physical shop in your locality (soap table at the farmer's market or whatever). This is clearly a hobby and ain't nobody at your local government or the IRS got time to care about $600 worth of hobby soap.
posted by bradbane at 10:57 PM on December 3, 2018
Business licenses are, generally, only required if you have a physical location open to the public and/or employees. The rules vary obviously but they are not for hobbyists selling some stuff on the internet. Your locality will surely take your money if you want one though.
I cannot imagine what you would need insurance for to sell things on Etsy, what do you think your liability is? There are no "requirements" to have insurance to be in business, unless you think there is a serious risk your soap will burn down someone's house or something. I personally only carry liability insurance in my line of work because I hire subcontractors, and if someone hurts themselves on my job I would be liable. I don't see how that's a concern with Etsy soap.
None of this has anything to do with your taxes if it's a hobby, you can't deduct hobby expenses as Kadin points out. At the scale you are talking about, you wouldn't come anywhere near the standard deduction for itemizations so this is a moot point even if it was a business.
Speaking of the IRS, $600 in income is actually the cut off for filing a 1099. So in other words: the IRS can't even be bothered to deal with stuff involving the amount of money you are talking about here.
If you want to do this by the book, the only thing you really need is a sales tax license for in-state sales. Those are free everywhere I've lived but it's a lot of paperwork and deadlines. Your taxes probably have an honor-system line item for "sales tax for internet purchases", personally I would just remit it that way if you even make any in-state sales.
IMO you only need to think about this stuff if you set up a physical shop in your locality (soap table at the farmer's market or whatever). This is clearly a hobby and ain't nobody at your local government or the IRS got time to care about $600 worth of hobby soap.
posted by bradbane at 10:57 PM on December 3, 2018
Response by poster: Thanks for the your advice, Bradbane. It's good to hear that a Business License isn't really something I need to deal with right now.
Regarding insurance, since I'm selling a body product that is made with lye, I wouldn't feel comfortable selling my soap without it. I'm extremely careful, and would never sell soap that has residual lye in it (obviously), but that doesn't change the fact that someone could have an adverse reaction to my product. From my research, it's standard practice for soapmakers who sell - at any scale - to have insurance. Through crafting and soap guilds, it isn't even that expensive. I'm more than happy to invest that ~$300 for peace of mind.
posted by moxie_milquetoast at 5:52 AM on December 4, 2018
Regarding insurance, since I'm selling a body product that is made with lye, I wouldn't feel comfortable selling my soap without it. I'm extremely careful, and would never sell soap that has residual lye in it (obviously), but that doesn't change the fact that someone could have an adverse reaction to my product. From my research, it's standard practice for soapmakers who sell - at any scale - to have insurance. Through crafting and soap guilds, it isn't even that expensive. I'm more than happy to invest that ~$300 for peace of mind.
posted by moxie_milquetoast at 5:52 AM on December 4, 2018
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DC Municipal Regulation 17-3800.1 (rulemaking published as 55 DCR 12137) states: Unless you have employees or formalize the business via incorporation (or partnership or whatever structure), you won't have a TIN and thus wouldn't seem to trigger the GBL requirement. It sounds like you are doing this to offset the costs of a hobby, not to start a business with the intent of turning a profit. If that's not correct, and you think this will take off and you intend to pursue it into profitability, then you could certainly just get the GBL now—but I don't think I would, and you might have to change it if/when you incorporate, so it might not make sense to do it in that order.
The SBA has a good page titled "More Than Just a Seller – How to Start a Business on an Online Marketplace" which discusses this issue. They are not giving the hard sell on licensure and formalizing the structure of a business in advance of profitability, which I think is interesting ("[Y]ou can buy and sell on these sites without formalizing a business entity. To the IRS, you are a hobbyist. It might even be a good idea to test the waters this way to give you an idea of what you’re getting into before diving in head-first.") The IRS has a multi-point test to determine whether something is a business or a hobby. Largely it hinges on whether or not you engage in it with the intent of making a profit (business), or just to offset expenses (hobby). Hobbies can't deduct losses in the way businesses can; that's the major tradeoff that would make you want to become a business.
Etsy doesn't enforce or police state-level business licensing issues, so I personally wouldn't run out and throw down $325 for a GBL when there's no clear requirement to do so. But I'm just a dog on the Internet; the next step towards a reliable answer would probably be to contact the DC Small Business Development Center and just ask them, if you are particularly concerned. I'd bet they get this question a lot.
Sidebar: It really bugs the shit out of me that there's no "and" following the semicolon at the end of 17-3100.1(a); it's pretty clearly implied, but would it have killed them to be explicit? Ugh.
posted by Kadin2048 at 12:16 PM on December 3, 2018 [1 favorite]