The Law and Blacksmithing:

What laws and regulations apply to my blacksmithing business?

In the United States there are no specific laws or licensing requirements for being a blacksmith. However, your locality (city, state, county) MAY require:
  1. A business license to publicly or privately sell goods. This MAY or MANY NOT be coupled with a sales tax license (below). If you only provide services then you may need a professional license. These are all for the purpose of collecting fees and taxes. If you are a hobbyist or only make "occasional sales" then these generally do not apply to you.

  2. Sales tax license. These are usually administered by the state. If you purchase items for resale OR manufacture items to sell to the public or other businesses this may apply to you. In many locations a sales tax is required for you to buy goods or materials wholesale or tax exempt. Generally the only goods that are purchased tax exempt are those that are resold or go into a product for resale.

  3. A contractor's license IF you install architectural work. In some places this MAY replace the business license.

  4. A UL or CA number if you make and wire lighting items (lamps, chandeliers).

  5. Local Zoning may apply to your operating a manufacturing business. Note that some places specifically list "blacksmith shop". This was from the days when blacksmith referred to "farrier" and people wanted them close by to shoe their horses. But a blacksmith is a blacksmith and their mistake may be to your benefit. You may also come under "artist's studio". Artists are considered professionals and may not come under "manufacturing". However, professional offices are also covered by zoning when open to the public. One important consideration for professional offices is that there is sufficient off street parking.

  6. Local EPA regulations may apply to your burning coal. Federal regulations do not as you are too small a source (tons per year rather than tons per hour). Local ordinances may cover all sources of smoke AND they may make you go to the Federal EPA (who will tell you the above - you are too small).

  7. Open flame ordinances may apply. Note that there is often an exemption for cooking.

  8. Your state MAY require farriers (horseshoers) to be licensed. Many do not. (this probably does not apply to you).

  9. Manufacturers and businesses are often taxed on their equipment. Mechanics and professionals often are not. Personal non-business tools usually are not taxed. Look into this carefully before declaring a lot of tools and equipment. Often old tools and equipment may not count, small hand tools never do (if a child can walk off with an item then it is a SMALL TOOL). Everything on a depreciation schedule or amortized on your Federal taxes will be known to the locality and probably taxed. Often it is cheaper to keep tools as personal items rather than put them into a business and have to pay taxes on them year after year. How you handle this is known as "tax planning" and is up to you to determine the legality. You may want to consult a CPA.

  10. Business liability insurance may be desired, OR necessary if you do work for other contractors. Today most contractors want their sub-contractors to be insured rather than covering them under the contractor's "umbrella".
IF you are opening a significant business it would be worthwhile to hire a local lawyer, and or accountant to find out what is required unless you are very good at this type research. Ask them to provide you with copies of the laws and ordinances in question so that you can study them yourself.

IF you are opening a small one man business with little visible impact then I suggest that you research the above yourself. DO NOT go to city hall and ask. "What permits do I need to operate a blacksmith shop?". If you do so then you are on their "radar" and you may be in trouble. Do the research! The information will not all be in the same place. Some will be in the Public library, most in the Courthouse or Clerks Office. Some may even be on-line. DO ASK if the codes you are looking at are current. Those in public libraries often are not. Zoning changes constantly.

I have found the people at most county clerks offices to be friendly but only to a limited extent. They will point you in the general direction of what you are looking for but will NOT look for you. It is not their job. Listen closely to what they say. It will be quick and there may be no second chances.

State laws are usualy found in the local courthouse. You MAY need an appointment to use them as there is often high demand. State laws are also found in the state library, state university libraries and private law libraries. Laws constantly change and keeping the library up to date is a contant task. For this reason many state laws are now found on-line.

Local - City, County laws are usualy found in the County Clerk's Office but may also be found in the county library. A few may be found on-line.

Zoning Maps are usually found in the county or city tax office but are sometimes found in the City, County or Court Clerk's Office.

If you are a hobbyist then you should look into the zoning, noise and fire ordinances. You can probably operate within them if you know what is expected. Note that ANY complaint from a neighbor will be considered with more weight than your rights to do what is legal under the law. It is not right, but that is the reality of politics.

NEIGHBORS:

In this era of "Environmental Consciousness" a neighbor that lives in an inefficient glass house, drives a gas hog SUV and burns tree leaves producing clouds of acrid creosote filled smoke may find your slightly sulfurous coal smoke offensive because it is "different".

The same environmentally consciousness neighbor that has screaming kids in the back yard, a noisy basketball hoop and backstop and uses one of those obnoxious leaf blowers may find the tink-tink-tink of your anvil to be unsuitable noise.

It helps to make friends with your neighbors. Invite them over for a barbecue and demonstration. Give them gifts (an S-hook or toasting fork). They may think it is neat to have an old-timey blacksmith nearby.

DO NOT brag about making weapons or show them your knife and sword making collection. They may think you are the next home-grown terrorist bomber! If THEY volunteer that they are SCA members and offer to show you THEIR weapons collection then that is a different thing and you are "in like Flint".

BLACKSMITHING AS A HOBBY:
This is common enough that the Germans have a word for it "Hobbyschmied". As a hobby (non profit endevour) you can do many things in your home, yard or on private property that you cannot as a business. Where you may burn coal in your back yard as a hobby you may be regulated as a business and may be forced to change to smoke free gas. Where you may invite a bunch of friends over for a private blacksmith meet and have them park on the street and on your lawn you may have to provide paved and marked parking places as a business or professional office. Where you might sell a piece of work or make some repairs from your home and pocket the proceeds as a business you will need to keep record of income and expenses.

Where you may be able to do all the above from your suburban back yard or city basement shop as a hobby without complaint from neighbors you may be forced to move your operation to a business or manufacturing district to do the exact same thing as a business.

THE ARTIST'S STUDIO
Are you a blacksmith or are you an artist? Only you can say. But many metal sculptors that use the same tools as a smith absolutely ARE artists. "Artists studios" are allowed by many zoning laws in any area that can have a professional office. So what you call your place of business can make a big difference. A "studio" may be allowed where a "shop" is not. Something to think about especially if it applies to you.
BLACKSMITHING AND TAXES:
In the United States as a self employed artisan you will need to file a business tax form, Schedule C. This is required to claim expenses against your business income. If you have a profit you will be required to file a Schedule SE for self employment taxes. Self employment taxes are the same thing as Social Security except that as a self employed person the rate is double because you have no employer matching your contribution.

As a business you can write off just about EVERYTHING as an expense. Example, Donations to ANY organization whether tax exempt or not can be written off as advertising if the donation includes a credit line in a program or magazine. This is not just charitable, it is advertising. The important thing is that you keep records of all your expenses.

As a manufacturer of custom goods you are not an inventory driven business like a grocery or department store. Unless you have an enormous amount of raw material in stock or finished goods in stock it is best not to have an inventory. Ask your accountant to be sure but most of the time the small amounts that blacksmiths have on hand are not considered inventory and inventory rules do not apply.

Currently unless you drive a heavy truck and have very high fuel and maintenance expenses the mileage flat rate is your best method of writing off transportation expenses. Record your odometer reading at the beginning and end of the year.

Currently the IRS lets small businesses write off a significant chunk on machinery that many years ago you had to depreciate over 5 to 10 years. You are best off to take the accelerated depreciation deduction and not have to keep a depreciation schedule for each machine. Also note that when you convert from a hobby to a business you may be able to write off machinery you put into the business.

Small tools are just about anything that can be walked off with. Wrenches, hammers, screw drivers, tongs, reference books. . all small tools. Tools that may seem to be a sizable investment often rapidly depreciate as soon as you buy them. What will that $200 electric grinder bring at the flea market tomorrow if it is stolen OR you must sell out? Very little. It is a "small tool". Some tools like drill bits are about the same as a consumable. Small tools are written off as an expense the year that they are purchased.

Your utilities, fuel, materials (everything from steel to sandpaper and paint), libility insurance and advertising (including web-site expenses) are all expense items.

Read the rules for each item on the Schedule C carefully. Things change but most of the rules are fairly simple. Some things like meals on the road must be reduced by half. If your business is at home you cannot write off the home (base) telephone but you may write off other phones, specific long distance or toll call on your home phone.

Due to the exclusivity rules you are best off not to declare an office in your home. This is a red flag and may get you audited. However, expenses for shop space are not an office. AND there is one place that the exclusivity rule does not apply, storage. You can declare storage space as half business and half personal. Don't do it unless the space is clearly defined and a significant expense.

If you do not do your own taxes be sure your accountant clearly understands your business. Even if you have someone else do your taxes you will need to provide all the data, recipts and so on. You need a business checking account and for the bank to return your physical checks and monthly balance sheets. On-line reports are VERY helpful from your bank and credit card companies but you need that paper backup.

Employees add several layers of complexity to your business. You should probably hire an accountant to do the paperwork and keep you out of trouble. SO. . when you hire that first employee you have ANOTHER part time employee as an expense. When you hire that first employee you need a Federal Employer Tax ID number, you will need (are required to have) unemployment and worker compensation insurance. Employee taxes are paid to the IRS on a Quarterly, Monthly or AS ACRUED (daily) basis depending on the number of employees and amount of taxes. DO NOT apply for a Federal Employer Tax ID number until you are ready to employ someone. Once you have that number you are required to file quarterly reports.

Note that not paying withheld employee taxes can bring the both the State and Federal government crashing down on you. Get caught doing this and they will seize property first and aks questions later. Having employees is serious business, THINK about it.

PROFIT OR LOSS: The IRS can declare your business a hobby if you do not declare a profit 3 out of 5 years. However, there ARE exceptions to this. It is common for new businesses not to make a profit for several years. AND if you can prove you are legitimately in business, trying to make a profit and not just trying to offset income from another source. The IRS has a list of exceptions but you may have your own explanation.

On paper you can make a business look good or bad by juggling the numbers. The IRS says you MUST report all income but they do not require you to report all expenses. In fact it is common for people to overlook expenses or lose recipts or proof of the expense. If you do not want to show a loss then just leave off some expenses. A profit, no matter how small is a profit and may keep you from having to explain that you took losses the fourth year in a row.

State Taxes vary greatly in form, substance and requirements. However, most will require a copy of your Federal Schedule C and supporting documents. States, and even you locality have access to your Federal tas returns so be sure to report the same income you did to the Federal government.


References and Links


Copyright © 2006 Jock Dempsey, www.anvilfire.com

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