# Insurance needed or Paranoid?



## Hamlinwoodshop (Nov 21, 2012)

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.


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## msmith1199 (Oct 24, 2012)

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.


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## Kreegan (Jul 10, 2012)

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 (Nov 21, 2012)

Rich,

Do I go with an attorney or insurance agent?


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## JesseTutt (Aug 15, 2012)

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.


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## msmith1199 (Oct 24, 2012)

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.


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## Hamlinwoodshop (Nov 21, 2012)

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.


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## huff (May 28, 2009)

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.


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## Kreegan (Jul 10, 2012)

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


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## msmith1199 (Oct 24, 2012)

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.


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## pintodeluxe (Sep 12, 2010)

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


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## Knothead62 (Apr 17, 2010)

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.


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## msmith1199 (Oct 24, 2012)

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


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## Hamlinwoodshop (Nov 21, 2012)

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.


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## msmith1199 (Oct 24, 2012)

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.


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## Kreegan (Jul 10, 2012)

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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## helluvawreck (Jul 21, 2010)

You also have to worry about somebody getting injured on your woodworking equipment in your house. I don't allow any one else to use my equipment.

helluvawreck aka Charles
http://woodworkingexpo.wordpress.com


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## msmith1199 (Oct 24, 2012)

Charles makes a very good point. Right now I am in the process of selling thousands of BF of hardwoods that I bought at an auction. I have people coming to my shop and picking it up. I have allowed a few to use my Mitersaw to cut wood down to size to fit into their vehicles, but there have been a few that I wouldn't let near the saw. I am really taking a chance by allowing this, but the ones I allowed to use it were professional woodworkers.

Now I did have an elderly Chinese guy come and buy some wood from me and load it into his small truck and he kept asking me all kinds of questions about loading his truck. I really wanted to help him out more, but when you start giving people advice like that then you start to assume liability. He wanted to fill his entire truck bed up with hickory and he kept asking me if I thought the truck could hold it. I kept telling him that was up to him to decide, but at some point I told him I thought it was getting too heavy. You're generally okay when you tell somebody not to do something, but if I would tell him sure I think your truck can handle it, and then he pulls out of the driveway and his axle falls off, I may be liable for that. Then he wanted to put more air in his tires, one was real low, and he kept asking me how much pressure to put in. I showed him the placard on his truck door and told him to decide. It's actually sad that we have to be so paranoid that we can't help people more like this, but when you run a business you really have to be careful about liability. If you do something stupid that comes back to bite you with your insurance, you may find your insurance company cancels you and then you can't find anybody else that will cover you.


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## bruc101 (Sep 13, 2008)

Our commercial business is a LLC company. That protect us, in my state if sued, from the person that sues you cannot come after your home and property. We also have a policy that no one but employees and family are allowed in the work area of the shop.

Our insurance is costly because of Liability which is Liability insurance, Having over three employees we also have to have Workman's Compensation and we carry a Group Medical Policy for our family and employees and their family..spouse, kids under 18 and a kid in college.

Having a small shop at your home used to have no problems with people wanting to sue you and we all know now…a person can sue anyone for anything and are sue crazy now."greed"

Our Home Owners Policy covers Liability in my small shop if someone was in there and got hurt, including you if you were there and got hurt or anyone on our property unless they were being stupid and got caught being stupid by the insurance company.

I sell furniture built in my small shop to people I know and trust. If someone contacts me, and not from a referral from a friend, wanting me to build them a piece of furniture then I'll build in my small shop and sell it through my commercial shop.

I would think if you went public with a small shop business then you have to be a small business and run it like a small business and pay accordingly to your local, state and federal codes. Because we live and our shops are located on the back side of nowhere in our county we do not have to buy a business license per our county business license codes.We do have to pay property taxes on the shop building because its considered a structure on our property and is included in our property taxes as a whole.

A small woodworker in the nearest town to us was selling crafts from his small backyard shop to the public. All of a sudden he got a sumons from the county saying you have to have a business license and you probably owe us this amount of back local sale taxes. You cannot operate anymore until you buy a business license and pay us these prorated back taxes. 85 years old on Social Security trying to make a little extra money so he and his wife…could have a decent life.

I know and love both of them and give him a lot of scrap wood for his shop…decent people on a fixed income trying to keep their heads afloat shot down by city codes.


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## bruc101 (Sep 13, 2008)

If…you sell off your web site, and at the present time but our politicians are trying to change it, you do not have to charge taxes unless the buyer is located in your state.

It seems our society now has got us looking over our shoulders keeping an eye out for anyone wanting to stab us in the back…and that goes for a business also.

Just my 2 cents worth.


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## MonteCristo (May 29, 2012)

It will sound "smart ***", but it's not intended to be: move somewhere where lawyers / suing people aren't so popular. As a foreigner, I am amazed at the affinity that many in the USA have for suing people. Sadly, Canada is racing to catch up.


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