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I Forge Iron

Small business blacksmithing


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I have always wanted to have a decent shop on my property, but never could justify the cost vs. my ability to generate any income. I have always tried to use the profits from my blacksmith work to finance my hobby… sell a little, buy an anvil… sell a little, buy a welder… so on and so forth.

Recently, I have seen increased opportunities for more work, but find myself somewhat limited by the size and configuration of my forge and shop. It is all small and cobbled together over several years.

In the mean time, my kids are considered adults now and we have lost all of our child tax credit. I don’t make an excessive amount at my day job, but now the government is going to be hitting me hard compared to what I’ve been used to.

I was talking to my wife about my thoughts of someday having a new shop building and picking up some more work on the side. She mentioned that there might be some way to start a home business and write the expenses off to get some tax relief. I have lived around farmers my whole life and have heard them talk about “showing a loss” and only occasionally turning a profit in order to keep from being eaten alive by taxes.

So, my end game would not be to get rich “pounding out the profits”, only to finance my hobby by doing some work here and there as a part-time business and in the mean time having some deductions to put on the “long form”. Basically doing what I'm already doing, only on a larger scale and with a bit more paperwork.

Does this idea have any merit at all? Do any of you work on this part-time scale? We have been a “short form” family up until now, so I’m just looking for a good excuse to expand my meager operation.

Thanks,

Don

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Don, I have been doing almost what you are thinking for 4 1/2 years now. My business varies between a full time and part time. I work by myself and is hard sometime to find the right kind of jobs and equally hard to turn the bigger ones down that would rquire hireing someone. Once you have one employee it changes the rules of the game. I actually have 2 jobs to make ends meet. It also is a home based businees. It helps keep the overhead down and there are tax incentives too. I have seen many succesful smiths run this type of business, not looking to get rich but just make a living doing what they love.

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Don, I am strictly a hobbyist, now. But I, too, did what you are thinking and it did have tax incentives with it. As I bought tools and equipment, I paid for them with the income from my shop. I would suggest using a professional tax person to do your taxes, too. They can get complicated for someone like me that has trouble figuring out this computer. :) If you are asking for advise, mine is give it a go. I believe that you will find that it will be worth the effort. My $0.02. :)

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I would say go ahead, But:

Make sure you charge what the work is worth. Include the cost of your new "toys" and the shop in your shop rate, both to be fair to yourself and those who are trying to feed their families with blacksmithing. Both for altruistic reasons and that the full time smiths in your area are less likely to share their knowledge if there are part timers undercutting and driving prices down.

Make a profit by at least year 3, the tax people are not stupid. If you consistently lose money they can decide you are not really a business and that it is "just a hobby" and can disallow all your deductions.

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I've worked at it part time for almost 30 years. I started by doing high volume piece work for a smith who had a going concern but had developed carpal tunnel. I made thousands of simple items for less than a buck each - and before anyone rolls their eyes, I can tell you that I got VERY fast at forging points and other elements, which gave me a good understanding of how to take a proper heat and how steel moves under the hammer. This first business experience taught me a lot and since my "normal" career has always been working in high production job shops, I was also able to take lessons learned in my daily activities home to the anvil and vice versa. In years past, I managed a couple of large facilities and often surprised guys in the shop with welding, heat treating and machining knowledge that I learned on my own time.

I typically now generate income in the low five figure range - it would be tough to live on but makes for a tidy side business. I am free to take in only the amount and type of work that I want to do. For example, several years ago, a local general contractor who only does high-end home work and restorations, contacted me about reproducing some obsolete window hardware for a historical mansion that was originally built in the 1930's and already partially restored twice. The main house had 26 fireplaces and 200 windows; the client was very picky about details but liked my work enough that it turned into a 4 year project. I repaired copper gas light housings that were made in the 1930's and taught myself to cast bronze hardware using lost wax and sand casting methods - neither of which I had any experience with. However, price eventually became unimportant if I could deliver the end result. This restoration later led to more work done for a local museum. I think it should be noted that I could not have done a good job if my general skill set had not developed the way it did - in other words, I doubt i would have succeeded if this had come by fifteen or twenty years ago. This is an important point because I believe you can use your current life experience to make your business successful.

In closing, I'd only offer three more things: (1) Do the very best job you can on every piece you make because you never know who will look at it; (2) Don't bite off more than you can chew - people can accept a 10 week leadtime if they recognize what they are getting and the fact that very few people can do this type of work; and (3) Develop a good website presence as many of your customers will find you in that way.

Edit: Forgot to add that I do treat this like a business and usually wind up paying taxes on the income, which I'm happy to do when I make a profit...

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Great advice gentlemen. I really appreciate it.

Any other input will be more than welcomed.

Also, when giving such a business an actual name, is there any official hoops you have to jump through, or will a simple Google search suffice (to be sure the name isn't already being used)?

Again, I thank you all.

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From one of my lawyer friends "Most lawyers just google search a name..." Also you may wish to make your shop an LLC. That way if anything goes wrong, somebody can only go after your shop, and not you, your house, car, etc.... On the flip side, if you use your truck as a write off to the business, then the company owns it and they could go after it.

Talk to a lawyer. I suggest befriending one at a bar or somewhere. Free lawyer advice is good stuff.

I'm in beginning process of doing the same thing - but only for insurance purposes for demoing.

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As I understand the IRS rules, you typically have 5 years To show a profit. You can use your investments, expenses and losses to offset all of your income during your start up. At some point you will face "the test", at that time the IRS will determan if you are a buisnessman or a hobbiest. The general guideline is simple, "if it walks like a duck...". If you runn it like a business, have a business plan, work your plan and make changes in an attempt to make your business profitable generally you are a business.
Face it only o fool or a hobbiest keeps putting money down a rat hole. If you are declared a hobby, unless you have blatantly cheated Uncle Sam, they wont disallow your past deductions, but further expenses for your "hobby" will only be allowed to offset income from said hobby.
Interesting note, ever wander wy rich people raise race horses? A horse related business gets 7 years to prove it's self.

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As Far as your business name goes I would register somewhere. I have mine register with the AZ Department of State. Take your time and put some thought into your name. Your company name can make or brake you. I have seen some who might put there name as Bla Bla Studios and most think they are a photographer, or Designs by Bla and they think they are a interiour designer. I have gotten more compliments from my company name. People see and remember it. They don't have to remember a phone number just the name. They can find most numbers now a day's just by using a search engine on the internet. My wife is a accountant and does my books and I have always shown a some profit each year. There are always ways to find tax credits on your business. A good finacial advisor / accountant is a must have.

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What he said! *Knowing* the tax code is a must for a small business and a good accountant can make or break your business! Just consider depreciation on your tools---might mean a profit for you some years but no hobbyist has to take it into account. If you are making stuff that has a liability potential then a LLC makes a whole lot of sense.

Is there a local community college that offers small business courses? *WELL* worth the time and money! Also see if the SBA (Small Business Administration) offers any courses or workshops locally.

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Don,
What the others have said and this:

Do not think about getting an accountant...get an accountant..a CPA or someone who works in the same business under that CPA's guidance.
The profit vs loss is a bit more flexible that you may think...until it is not.
Form an LLC or some other corporate structure (I have a sole proprietor LLC) and keep the state records up to date.
Be sure you pay all your taxes...even the "use tax" which I get a nice letter about each year from the state....its a tax on all the goodies you buy from out of state and internationally (books on amazon and ebay stuff and conferences).
Keep ALL receipts..for everything...and store the years information for ever (they say seven years, but a forensic audit can go back as far as they wish to look).

Keep the records updated for quarterly and annual books...It lets you and those who need to look see where you actually are.
Think about a website or at the very least business cards.
Get a FEIN...federal tax number...this will come when you register with the state and feds.

It may seem like a lot, but most of the above cost me about $300 when I set up shop and the paperwork is rather simple...many of the same questions over and over.

Insurance:
If you work out of the house (attached shop) then you may find it very hard to get insurance..or not. I use Society Insurance here in Wisconsin and have no big complaints (the rates go up every year).
Find out from the local reps or ABANA chapter who they use....and have them quote.

The better you set it all up in the beginning the simpler it is later...and more professional.
Tennessee has a large unemployment rate in many areas....I would think they like the idea of you setting up a business...speak to the local business administration for your town or these guys:
http://www.tsbdc.org/
or
http://www.state.tn.us/ecd/pdfs/SGB_smart_guide_2010.pdf
They can walk you through the process.

You are forming a small business or micro business
You are an "artist blacksmith" or "metal artist" or blacksmith or something along those lines......not a fabricator or welder.
Having a "studio" is better that a "shop".

Ric

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Not sure if this will help in your situation, but if you have a situation where you could possibly make it a "farm" may be worth looking into, and "farm" is a very loose term in the tax world, I write off all of my shop expenses due to my "farm" which loosely resembles a petting zoo for my kids, dozen or so goats, some chikens, a few pigs, and a small orchard gets me in like flynn with the lovely people in the IRS, I know not everyone is in a situation where this can work out for you, but its worth checking into, in most states its not an acreage limit on the farm , its the amount of money its capable of generating........ think Bee hives here......... and we all know you need tons of tools to maintain your farm equipment....... and custom hire work is bracket in my accounting book. So basically since I am fortunate enough to be a farmer almost all of my shop equipment gets a decent tax break, and if I make a little side money using it for Custom Hire work then thats just a bit more income for the farm, Im no accountant though so gio talk to one, mine is well worth the price and makes sure everything is good and legal and up front........... last year she wouldnt let me deduct a new rifle as predator control, but other than that we get along great lol.................

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Wow, thanks for all the good input.

I think a feller could eventually figure out how to do his own appendectomy from the collective knowledge on this forum :)

So, before I start doing my own homework, someone briefly explain the LLC process and what that entails.


And Nathan, I have 10 acres, two Highland cows, two cats, and mentally challenged blue heeler. I've thought about the farm angle, but I'm afraid some of my purchases might be too far removed from agriculture to pass muster... like your predator control unit.... unless I could write of a Little Giant as a walnut cracker... hmmm :ph34r:


I do appreciate it.

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I have no problem writing off any tools what so ever, after all blacksmiths made all farm equipment at one time, a good accountant it is a must, I wrote off a lawnmower and a grass bagger simply by dumping the bagged grass in the pasture.......... Silage.... all her idea, the LLC process is pretty easy, not sure if it differs from state to state, but in Indiana I beleive its some paper work and a two hundred dollar fee, I could ask my Dad to verify, but Im sure you can find that out just as fast on your own. Either way its great to hear you are doing so well with it, always good to know someone is getting a chance to make a little cash doing something they enjoy

On an other note, are the highland cows a heritage breed, if they are the long haired medium horned beef critter that I think they are then you may also want to do some research on Heritage Breed cattle.......... massive tax breaks and govt funded incentive programs for Heritage breed livestock, Im not sure how easy it is to get for the cattle, but the bird flu scared they crap out of the Ag Dept. and they started some very good programs to encourage small scale poultry flocks to insure an industry future if they ever had to kill the large commercial flocks due to disease. Lotta grant money out there too start small Heritage flocks of chickens, lot of paper work to get at it, but there is help out there for that, my local ag extension office was great for that.

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We immediatly got a L.L.C legal like, I traded some ironworks for the lawyers home, and made a bedframe for a couple of years CPA assistance, as for taxes we pay all assessed property taxes , and city taxes for inventory. We bought our building in a light industrial zoned area of the city, and have an occupancy permit for a "Light Repairs " biz, this allows us to only be assessed the minimum for materials on hand. You will be visited by the fire inspector at least once in your first year, you could be fined for simply having a oxygen tank not tied up so it cannot fall, Pay sales tax !! file even if there is no sales. there might be a few more hassels I forgot to mention, but there is NOTHING like working for yourself. Good Luck!

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I am very interested in this topic. Several years ago, I had a bad experience. I was very aggressive about deducting all my expenses, including tools, subscriptions, facility rental, etc. I did everything exactly correctly, and never cheated on my taxes. Personally, I have a high sense of ethics, and any kind of cheating (except the kind involving an arc welder) is disgusting to me. For some reason, the IRS did not like what I was doing. Even though I had a healthy profit every year, they "hinted" that my expenses were really entertainment. Well, if you saw my big grin when that powerhammer fired up, they were kind of right. But, technically, according to the law, I was entirely right. My moment of weakness came when I became dependent primarily on a single client. Knowing they couldn't touch me, the IRS went after the client. They claimed that I was a contractor, not a consultant, and effectively was working under the client's explicit direction. Therefore, I was an employee, and the client owed back taxes, and health care costs, etc. My client suffered a devastating audit. I had to communicate with the IRS field agent nearly every day. It was amazing how much time that agent had. And how much time I did not have. I had to absorb all the costs of that unfortunate exercise. Although I won, using things like past reputation determined self-guided direction, and such, it was a pyrric victory. My client said that the inconvenience was too great, and he terminated our relationship. That was the end of the business. This was also the end of the tax stream, since I paid taxes every year.

Later, I read an article about how the IRS "discourages" hobbyists, and it told about sad stories such as mine. They are in a sense, justified, since I would never buy so many toys if I weren't self-employed.

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Man im glad i dont live in California................ thats an awfull example of the American Dream right there, and a great example of our corrupt govt. overstepping its bounds.............. but I will quit there as politics is an entirely different topic lol.

Nathan, the IRS is the FEDERAL Gov. and not specific to California. <_< There may be other things that differentiate our state from the "lesser 49" but blaming the IRS for that is not one of them. :o For a good rundown of the way our system works watch the Jesse Ventura reruns on youtube. :ph34r:
Rob
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My uncle is a non-success story with his carpentry gig. He makes toys, coin banks, and the like. Everything he does is classy, detailed (even if simple) and in decent volume. He has refined his operation to allow for cutting lots of 10+ of each in a session, or even a single operation, and pays attention to the paintwork, etc.

He set up and ran a business as a second job selling on consignment, at craft fairs, custom work via several sources. He played the game, set up the business with his lawyer and accountant, and ran to make profit in the time allotted by the IRS AND SUCCEEDED.

However he had no enjoyment from the work because it was all work, work, work and occupied all his free time for several years (it was the second job) and he never made enough to replace his "day" job. He has since dissolved the business and runs it as a hobby with a separate goal: he CANNOT make above a certain figure or he has to declare himself a business again! Apparently this figure is rather low, since he can meet it doing just a few shows and fairs without working with consignment, or using all his free time on his rather successful hobby.

Just another thought in the decision process.

Phil

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That is really cool, Phil. It is good to hear about somebody who has made this work out for him. It is understandable about how play can turn into work. Once, I had a large comission, and I started to dread working on it after a while, prefering instead to fiddle around with more experimental and non-money-making endeavors.

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  • 2 weeks later...

Hey Don,

I was a mechanic for near 20 years, always lived in the country and done all my own everything! Left the oil and grease behind three year ago to make rustic garden furniture. It really took off and customers started to ask for the matching ironwork which I couldn't provide, so I decided to start making it. Then I decided to start making green woodworking tools, froes, draw knives, twybills, and it's turned into 50% of my business.

As someone has already said - don't send out any work that you would not be 100% delighted to pay money for as this is how the business grows.

Good luck lad!

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