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Forum topic by Hamlinwoodshop posted 630 days ago 1097 views 1 time favorited 20 replies Add to Favorites Watch
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Hamlinwoodshop

46 posts in 636 days


630 days ago

What do guys think about protecting yourself in the event of a lawsuit?

What steps should woodworkers, artisans, and craftsman do to prevent themselves from a potential lawsuit when selling their goods to people?

Is this a concern in a craft like ours or not?

Do small time hobbyists have to have a LLC, insurance or nothing?

It may seem silly to some because my motivation is to just sell a few of my projects in order to put back into my shop equipment..not to make a living from it.

-- Terry, Hamlin, NY, http://www.hamlinwoodshop.com


20 replies so far

View Mark Smith's profile

Mark Smith

491 posts in 664 days


#1 posted 630 days ago

Check your home owners insurance policy. Most homeowners policies should cover you in most lawsuits. It’s probably going to depend on whether what you do with woodworking is considered a hobby or a business. It’s possible that if you sell anything then your homeowners doesn’t cover it, but you need to check your policy on that.

Now having said that, I have a commercial shop and I do have insurance. One thing my insurance will not cover is making toys. That is where your big liability is when you make something for kids and they figure out a way to hurt themselves with it.

-- Mark Smith, Tracy, CA., http://www.markscustomwoodcrafts.com

View Kreegan's profile

Kreegan

1452 posts in 771 days


#2 posted 630 days ago

I do not sell any of my woodworking projects as yet, but I am a small business owner. I would say that it depends on where and how you intend to sell your work. If you’re just going to sell it on ebay or craigslist, you likely won’t need to carry additional insurance. If you intend to sell via your own website or something like etsy, then I think you might want to look into setting yourself up as an S corp and get general liability insurance at a minimum. It really doesn’t cost that much. I think in MN it was 150 bucks to set up my S corp and then my liability was ~400 for 1 million for a year. If you do go that route, find a good insurance agent. They can give you advice on what you do and don’t need.

Rich;)

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Hamlinwoodshop

46 posts in 636 days


#3 posted 630 days ago

Rich,

Do I go with an attorney or insurance agent?

-- Terry, Hamlin, NY, http://www.hamlinwoodshop.com

View JesseTutt's profile

JesseTutt

802 posts in 734 days


#4 posted 630 days ago

It will depend on the type of work you do, if it involves installation (i.e. kitchen cabinets), and how you sell it.

If what you do involves delivery or installation then you may need a liability policy.

If you have employees you may need workman’s comp insurance.
Service organizations (i.e. Computer Consultants) will carry “Errors and Omissions” insurance in case they forget to do something or accidently break something. Woodworkers probably don’t need this.

Usually S- or C- corporations are taxed on their income and when they pay you your salary or “profit” you get to pay taxes again on it. This is the double taxation gotcha. If you form your own corporation be careful that you do everything correct. I think that you will need a set of stockholders and board of directors. They can be the same. A friend of mine arranged that his board was located in diverse cities and would then expense the cost of travel for the meeting.

Check to see if you can find a local SCORE office, usually they are co-located with the Small Business Administration.

-- Jesse, Saint Louis, Missouri

View Mark Smith's profile

Mark Smith

491 posts in 664 days


#5 posted 630 days ago

I just recalled looking at your website from another link. You have a pretty good sized operation you are running, at least based on what I saw on your website. So you really do need to review your insurance with your agent. For example, your tools and anything that happens in your shop may not be covered by your homeownders even though it is a shop in your backyard. You have set your barn up as a business and businesses are generally excluded from homeowners. That means your tools may not be protected in the event of theft or some other type of loss. The reason I got insurance was not so much of a worry about being sued, but to protect my tools and office equipment. I pay about $1000 a year which gives me liability coverage at my shop, product liability for anything I make, and coverage for my tools. It also includes things like loss of income if my shop is out of commission by a covered loss and even fraud insurance if somebody rips me off by fraud.

-- Mark Smith, Tracy, CA., http://www.markscustomwoodcrafts.com

View Hamlinwoodshop's profile

Hamlinwoodshop

46 posts in 636 days


#6 posted 630 days ago

Great information. I think I will start with my insurance agent this week. If not for anything else, at least I will be sure my equipment is covered like Mark wrote.

-- Terry, Hamlin, NY, http://www.hamlinwoodshop.com

View huff's profile

huff

2795 posts in 1909 days


#7 posted 630 days ago

Terry,
Your insurance agent will be a great place to start. Just make sure you give him all the facts about your operation. Don’t tell him you’re just a hobbiest and then turn around a run a business from your shop. Let him know if you plan on doing any selling outside of the shop or on-line. You just want to make sure you have liability coverage wherever you are (even in your vehicle transporting business related items).

A good accountant can help you decide what’s the best way to set up your business as far as being an LLC or not. (that’s for tax purposes, etc.) and then you can decide if you should talk to an attorney to see for liability reasons if there are atvantages for you to be an LLC or not.

BTW, I thought your web-site looked good and your barn is the perfect touch for your set-up. Good luck.

-- John @ http://www.thehuffordfurnituregroup.com

View Kreegan's profile

Kreegan

1452 posts in 771 days


#8 posted 629 days ago

When I setup my business, I didn’t talk to an attorney. I talked to a couple of other people who had the same sort of business (Software development consultancy) and talked to my accountant, who specializes in small businesses like mine. He was extremely helpful. I would suggest an insurance agent or an accountant and only go attorney if they recommend it.

I am not sure where the double taxing with an S corp came from. I do not get double taxed. I pay myself a “reasonable” salary, on which I pay full income, FICA and payroll taxes. Then I take profit distributions from what’s leftover, on which I pay full income and FICA, but no payroll taxes. In effect, I pay about 9-17% (depending on the payroll tax holiday expiring) less on slightly less than half my income.

Rich;)

View Mark Smith's profile

Mark Smith

491 posts in 664 days


#9 posted 629 days ago

Yeah no need for lawyers now. I have never talked to one. I did speak with a CPA and several insurance people. As for do you need to incorporate, there are reasons to. I did not and simply operate as a sole proprieter. I looked at the LLC path but in California there is some annual fee or tax that you have to pay and if my memory is correct it was something like $800 a year. The IRS treats the LLC the same as a sole proprieter so it doesn’t change the way you do taxes. If I planned to have employees or if I were going to make toys for children or something along those lines, I’d probably revisit the LLC route again.

-- Mark Smith, Tracy, CA., http://www.markscustomwoodcrafts.com

View pintodeluxe's profile

pintodeluxe

3315 posts in 1437 days


#10 posted 629 days ago

An umbrella policy through your insurance agent may give you additional peace of mind.

-- Willie, Washington "If You Choose Not To Decide, You Still Have Made a Choice" - Rush

View Knothead62's profile

Knothead62

2364 posts in 1585 days


#11 posted 629 days ago

My father and I had a sales business for seven years. We asked our CPA/lawyer about an S corp. He said we would have to pay income taxes twice- personal and corporate. We kept it as a partnership.

View Mark Smith's profile

Mark Smith

491 posts in 664 days


#12 posted 629 days ago

S Corps don’t pay taxes. The shareholders in an S Corp pay the taxes as individual income taxes.

-- Mark Smith, Tracy, CA., http://www.markscustomwoodcrafts.com

View Hamlinwoodshop's profile

Hamlinwoodshop

46 posts in 636 days


#13 posted 629 days ago

I must re-state, it’s just me and a buddy enjoying our shop (not a big operation, but I appreciate it may look like that!). Yes, I am gonna be totally honest and let the insurance company know exactly whats going on. My only disappointment would be if it would be so costly to operate a little business, it wouldn’t be worth it except for turning to a site like ebay or etsy and their fees. Etsy is a joke with the ‘artisans’ that sell their their wares for pennies. That would really p**s me off but I guess it may be a fact of life…

I have done a few craft shows and festivals in the past but the salesman thing is not my thing. I want people to look at my product and say “Yeah, I want to buy that” instead of me telling them to buy it.

-- Terry, Hamlin, NY, http://www.hamlinwoodshop.com

View Mark Smith's profile

Mark Smith

491 posts in 664 days


#14 posted 628 days ago

Like I said my insurance is a little over a grand a year, but I rent a commercial shop. The policy covers me for any damage I may do to the building as well as all kinds of other things. I actually didn’t want some of the coverage they offered, but the company I went with it was all included at a minimum mandatory charge. So I could have asked them to take things off, but it would not have lowered the premium any because I was at their minimum. Since your shop is in a building at your house, you may be able to just tag some type of rider onto your current homeowners policy that will cover your business activities and maybe it won’t cost as much.

-- Mark Smith, Tracy, CA., http://www.markscustomwoodcrafts.com

View Kreegan's profile

Kreegan

1452 posts in 771 days


#15 posted 628 days ago

There’s no denying that once you get setup and running as a business it costs money. I believe in terms of selling your wares there’s some kind of a threshold under which you’re generally safe from your local authorities coming after you for sales taxes and the like. You might ask an accountant about that. As long as you’re under that, you likely won’t need to get setup as a business. Of course, I’m basing this off how it works in MN and have no clue about NY, so better to ask a pro.

Rich;)

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