Legal Tips

Your home office doesn’t have to be your studio to qualify for the home office tax deduction. It’s sufficient that you regularly use your home office to administer or manage your crafts business — for example, keep your books, schedule appointments, do research and order supplies. As long as you have no other fixed location where you do such things, you’ll get the deduction.

Even if your home office is not your principal place of business, you may deduct your expenses if a part of your home is used exclusively to meet with crafts buyers or customers. You must physically meet with them at your home; phoning them from home is not sufficient. And the meetings must be a regular part of your business; occasional meetings don’t qualify.

• The famous “three year rule” — the IRS can only audit you for the past three years of tax returns — doesn’t apply if you fail to report more than 25 percent of your gross income or you file a fraudulent return.
• The key to ending (and winning) copyright disputes quickly is usually cold hard evidence. Record how and when you created your work in a crafts notebook. Likewise if you learn of a rip-off, buy a copy and save the store receipt. If possible, obtain business cards or other contact information from buyers at a show or from anyone who wants to photograph your work.
• Never confront an infringer until you have spoken with an attorney. Accusing someone of being a thief, especially if you’re wrong, can lead to legal claims against you.
• If you form a C corporation for your crafts business, you can deduct the entire cost of health insurance for you and the employees of the corporation.
• You’re obligated to keep tax records that relate only to the last three years, but that rule doesn’t apply for some records — for example, records for five-year depreciation period on business equipment and records of capital gains and costs for your home.
• You’re allowed to deduct half of the amount of your self-employment taxes from your business income for income tax purposes. For example, if you pay $10,000 in self-employment taxes, you can deduct $5,000 from your gross income when you determine your taxable income.
• Start-up costs must be deducted in equal amounts over the first 60 months you’re in business. These can include license fees, fictitious business and domain name registration fees, initial advertising costs, initial attorney and accounting fees, travel expenses, market research and office supplies expenses.
• Always pay your employee Social Security and Medicare (FICA) and employee income taxes (FITW). The IRS can seize your business’s assets and force you to close down if you owe these back payroll taxes.
  You don’t have to pay Social Security or Medicare (FICA) taxes for your child under 18 who works in your sole proprietorship or your partnership if it’s owned solely by you and your spouse.
• If you’re not sure whether you must file a Form 1099-MISC for a worker, go ahead and file one anyway. You lose nothing by doing so and avoid the consequences of not filing if you were legally required to do so — a $50 fine and severe penalties if the IRS later audits you and determines you misclassified the worker.
• Save attorney fees by consulting on several matters at one time. For example, in a one-hour conference with your lawyer, you may be able to review the annual updating of your corporate record book, renew your Web hosting agreement and check over a non-competition agreement you’ve drafted for new employees to sign.
  When hiring a business attorney, find out if you can pay fixed fees for certain work like contracts, incorporation, etc. Fixed fees give your business some predictability; you’re not waiting for a billing surprise at the end of the month.
  The cheapest hourly rate for an attorney isn’t necessarily the best deal. A novice who charges $80 an hour may take three hours to review a contract while a more experienced lawyer who charges $200 an hour may do the same job in half an hour and make better suggestions.
• The most efficient way to switch attorneys is to find a new attorney and have that attorney terminate the old relationship.
• Don’t automatically assume that arbitration is the best route to resolve a dispute. Although it’s usually less expensive and more efficient than litigation, it has drawbacks. Unlike a court ruling, a binding arbitration ruling is not appealable and can only be set aside by a judge if the arbitrator was biased or the arbitration ruling violated public policy. Also, arbitrators must be paid and these fees can run to $10,000 or more. Finally, most participants in arbitration hire attorneys, so you will usually not avoid paying attorney fees.
• Although “electronic signatures” are now valid under federal law, stick with paper until secure methods of electronic signatures have been popularized.
• If you have a “full-business” insurance policy, consider adding an “in-transit” rider (also known as an “Inland Marine” rider) that covers your inventory when it’s in transit. The rider can cover replacement costs or costs arising from damage or theft that occurs while your inventory is away from your studio, for example, being transported to a crafts show.
• If you belong to a crafts organization or a group of suppliers and want to have the right to certify the standards, for example, that pottery is from a specific town or that your quilts use organic cotton, get a certification mark. To learn more about certification marks visit the USPTO Web site (www.uspto.gov) and click Trademarks.