How to Sell Holiday Crafts for Fun (and Profit!)

In these unsettled political and economic times, comfort crafts, like comfort foods, should be a hit during the holiday season. If you've ever thought of selling your favorite homemade jams, holiday aprons, knit stockings or greeting cards, you can learn to make extra holiday money while soothing your own spirits. Even if you only break even, you just might lay the groundwork for an expanded business after the first of the year.

10 Tips to Get Started Now

1. Start small.
Don't get too ambitious. If you can comfortably make double the number of craft items that you normally give away as presents, then start with that number as your target. Try to buy in bulk or find items that have been marked down, but don't stock up on supplies to the point where you'll be left with tons of unfinished product at the end of the season.

2. Stick with what you know.
If your specialty runs to rum-soaked fruitcakes, don't switch gears and try to sew Santa costumes. Pick something that you've made before.

3. Stay below the radar.
Right now, your craft business is an idea. Next year, it might be a multimillion-dollar concern. But for this season, don't get hung up on business licenses and other red tape. Mentally classify your activity as a hobby and leave the paperwork until after the holiday season. If you actually make a profit, then go to step four.

4. Pay federal and state income taxes.
If your craft business turns out to be viable, don't cheat Uncle Sam. File schedule C, "Profit or Loss from a Sole Proprietorship" and parallel state forms. All small businesses must use Schedule C -- but don't be intimidated. There's an EZ version, similar to the EZ version of the 1040, that will work for a really small start-up. On the other hand, if you spend a bundle and don't make money for the first two years, you can take the loss without being subject to the government's "hobby loss rules" aimed at dilettantes who try to write off hobbies. (Usually if your losses are not huge, the government will leave you alone, even if your business doesn't turn a profit after the five years.)

5. Get the right business licenses.
Technically, you should get a license before you start a business. However, in many cities, such as New York, obtaining one takes months. So try out the business this season, and call it "research and development." If the business proves to be a success, then you can get serious about licenses. State, county and city governments establish specific local business licensing rules. As a result, no national set of guidelines exists. However, in every state and large city, business development centers, known as SBDCs, serve business start-ups. Seek out the local SBDC for help. You can find a directory of these at the Small Business Administration site. Also, many cities and states now have Websites that provide guidelines.

6. Register your business name.
For an unincorporated start-up operating from home, you'll need to register under the designation "Doing Business As" or DBA which is usually accomplished by advertising your name in a local newspaper or registering it with a county clerk. The exact format is up to the locality, as well as the state, so check local rules by calling city hall. Again, if you're only selling a few items and using your own name and checkbook, this step, while technically necessary, can probably be forestalled until you determine whether you're really starting a serious business.

7. Obtain a separate tax ID number and a resale license.
While it's perfectly proper to operate a business using your Social Security number as your tax ID number for business purposes, for privacy reasons alone, consider obtaining a EIN or Employer Identification Number from the IRS. You can do this right on the IRS Website. States also issue numbers. If your state does not levy income taxes, you may not need a state tax ID; check with your state's treasurer.

And, depending upon your state, you'll need to register to collect and pay state sales tax. Not all states have sales tax and each one collects it differently; check with your state tax franchise board. If you pay sales tax when you buy stuff, then you know when you sell it you'll need to collect and submit it. Now, all states have extensive Websites, so you can usually find the information there.

8. Set up a business address.
If your town requires a commercial street address to obtain a business license, set up an address at a Mailboxes, Etc. or other such postal service. Using a service also protects your privacy, while making your business more efficient. You can ship from there as well as receive packages while you're at work or out buying supplies.

9. Exercise care with food handling.
Since food handling laws can be tricky, before spending time on the routine licenses, you need to contact your state's equivalent of the Food and Drug Administration (FDA), often the department of agriculture or the city's consumer protection agency. If your home kitchen cannot qualify for a license, you may find that renting space in a commercial kitchen will be necessary once you've baked your sample products and found buyers.

For example, you could arrange with a local restaurant to cook in their kitchen during off-hours when the restaurant is closed and bypass a heap of aggravation. And don't forget, if you plan to send your cakes and cookies across state lines, you'll need to look at FDA and U.S. Department of Agriculture (USDA) labeling and other guidelines.

10. Remember to enjoy the season.
Starting a holiday craft business could bring a bundle of headaches -- or a bundle of joy -- depending upon how you approach your new baby. If you really want to start a serious, year-round business, use this holiday season to test-market ideas for next year because licensing and food-handling requirements can be tricky. On the other hand, if you and a friend want to have fun and try something a little different, keep it small, local and market to friends. That way, you'll have less chance of running afoul of regulations that must be met eventually if your business is to be a going concern. In the meantime, hang the holly, take a sip of sherry and see what you can concoct to bring joy to yourself and your customers.

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