Ready to get crafting and get some sales coming in? Or maybe you're still a little terrified wondering...'do I need a business license to sell crafts online?'.

The fear of getting busted for selling your crafts online without the right legal setup can be a little scary at first, sure...but don't let it hold you back! This is a common obstacle where TONS of artists just like you get tripped up when starting their crafting business.

Even though it's a little extra paperwork, a business license does serve an important purpose! Doing the research and making sure that you have the right licenses and permits to operate your craft business legally ensures that you won't end up receiving fines (or worse) later down the line.

It might seem a little overwhelming, but in this post we'll talk about the necessary requirements you'll need to have in place in order to get your handmade business legally legit...whether you're selling online, at craft fairs, or elsewhere.

Do I need a Business License to sell crafts online?

Why Business Licenses Matter

So why the heck do you need a license to legally operate and sell your art anyway?

Well, the simple explanation is that most businesses need some type of license to prove to their state (and the public) that they are safe to operate. It also holds you accountable for staying compliant with any laws that apply to your specific type of business.

For example, if you're selling some type of homemade food product under your legal name or a DBA (doing business as), you'll likely have a lot more (and specific) requirements when selling to the public as compared to an artist selling art prints.

This is because there is a lot more risk involved when selling food items, however, both types of vendors will still need a business license.

Another reason you need a license is to protect you both personally and professionally. A business license will help separate your personal affairs from your business activities, so in the case that something goes terribly financially wrong in your business, it won't affect your personal assets (depending on how you've set things up, this is not the case for a sole proprietorship).

Understanding Business Licenses for Craft Sellers

Structure Your Craft Business

Speaking of a sole proprietorship, let's next talk about the different types of business licenses and structures you can create. If you're wanting to keep things simple at the beginning, you're working alone, you want to keep costs low, and you run a relatively low risk business...a sole proprietorship might be for you.

Many artists start running their business this way simply because it's easy, flexible, and less expensive. However, you should also know that operating as a sole proprietorship does not legally separate you from your business as I mentioned earlier.

This means that if something goes sideways in your business, your personal assets could be at risk. This is something to keep in mind when deciding what business structure to create, despite it being very popular among creatives.

If that doesn't sound like your cup of tea, you can also look into starting an LLC. This structure does recognize your business as it's own legal entity, so personal assets like your home, savings, your car, etc, are protected in the case of a business related lawsuit or bankruptcy. Obviously, this is a huge plus!

However, there are some disadvantages as well. There is a lot more paperwork involved, there are additional fees and self employment taxes you'll need to pay. You'll also have to keep financial records.

At the end of the day, it's still pretty flexible and it does offer the enormous benefit of protecting your personal liabilities, but if you're bootstrapping your creative business from the beginning it might not be the most cost effective route for you to take.

Another simple option for your business structure would be to create a general partnership. In this case there are 2 or more partners involved (you being one of them), and you will share everything...profits, losses, and the risks involved. You will also have the same amount of power and responsibility.

In this structure, you are also working closely with another partner, so of course there is a higher risk of disagreement and friction than in other structures (we all have our opinions :)).

You also will not pay business income tax - a partnership is considered a 'pass-through' entity, meaning that the profits and losses of the business pass through to each partner individually. Each partner will report that information on their personal tax returns separately.

Craft Business Permits

As far as permits for selling, you'll definitely need one as a seller, and the one you'll need is called a sales tax permit. You might also hear this called a 'resale license', a 'wholesale license', or a 'seller's permit'.

In general, this seller’s permit gives you permission to sell your work, whether that's online, in shops, or fairs (you'll likely need an additional permit for craft fairs fyi). It keeps you on the hook to pay taxes as well.

You can also use this permit number to register with wholesale suppliers to save on taxes. For example, if you know you'll need a lot of beads and embroidery thread for your products, instead of buying your supplies at a retail shop, you can register with a wholesale distributor who will sell the same supplies for less, and in bulk. You won't pay taxes on the supplies you're purchasing to resell to your customers.

Registering and Protecting Your Brand

Once you know what type of business you want to create, it's time for a name! Exciting, yet terrifying...I know. Nothing like feeling you're getting locked into one name forever!

When you are filling out your business registration, you will be asked for your trade name, or your fictitious name (also called a DBA, or doing business as).

If you have chosen to run your business as a sole proprietor, or if you want to name your business anything other than your actual name, you'll have to file for a DBA. This sounds scarier than it is.

The first step is to decide on a name. Next, you'll research your chosen name to make sure no one else is already using that business name, particularly in your local area! If you’re in the clear, you can file the DBA, pay a small fee, and then run an article 'announcing' your new business in a local paper for a few weeks.

You'll have to show proof of that once it's complete, then you can submit your final paperwork and become official. The whole process takes about a month, maybe a little longer.

This is a loose overview based off my experience registering my business in California (which I later had to re-register in NYC), so your situation may be a little different. You'll want to consult your local county clerk or small business association for more details on what you need in your specific location.

After you become an official business, you can contact your bank to set up a business bank account. You'll likely want both a checking and a savings account. Ask upfront if there are any recurring fees you might be charged (there are plenty of banks that won't charge you fees fyi).

From this point on, it's extremely important to keep your personal and business finances separate from each other so you can make things simple at tax time, as well as keep good records! You may eventually want to invest in some bookkeeping software or bookkeeping help later down the line to take that pressure off your hands.

Sales Tax and Online Selling: What You Need to Know

Sales tax. Every artist's favorite topic :)

When you're selling online and making money from any type of product, you're going to need to collect and remit sales tax for each sale you make. This is something you'll set up when you are creating your online shop.

Whether you're selling your crafts on your own website or a marketplace site, you will have to set up sales tax before selling. You will need to fill out the sales tax information for your shop and designate the percentage of tax that will be charged to your customer on top of your retail price when pricing your handmade items.

You can choose to charge your sales tax in two ways. One way is to have the sales tax amount already added into your retail price ahead of time. This way, you can tell your customers that no additional taxes will be added, (when in reality, they are still paying for it through the retail price). Just a little trick that may nudge your customers into buying more easily!.

Alternatively, you can have the sales tax added in at checkout like most businesses do. Make sure to hang onto that tax money and set it aside until you need to pay it back!

When tax time comes, you'll have already registered with your state and have your tax ID number, so you'll just login online to pay the sales tax you have collected. Forgetting to pay your sales tax can result in fines and/or late fees, so make sure you are familiar with the deadlines and requirements in your state.

Licenses, Permits, and Craft Fairs: Selling Offline

When it comes to selling crafts at in person events like craft fairs, farmers' markets, etc, in addition to having your business license, you'll likely need an extra business permit. This sounds complicated, but it's usually very simple - just think of your business license as the main permit that lets you sell your art in general and online.

The additional permits are temporary event permits that allow you to sell at a specific event for a limited amount of time. Each event you sell at will also have it's own requirements for selling, so you'll want to contact the organizer, review their website, and/or both to learn what you need to set up BEFORE you show up to the event.

Once you know what your event requires, you'll likely have to file some simple paperwork that asks you the address or location of the event, the length of the event, the name of the event, things of that nature.

You'll submit that info and once approved, you'll be sent a temporary selling permit that you'll want to have on hand every day you're at the event in case an official comes by to check.

If you show up to the event without the required permit, you may be asked to close up shop and even pay a fine. It's really not worth the risk, so make sure to have all your ducks in a row before just showing up and selling at craft fairs.

Maintaining Compliance and Staying Informed

Once you're set up with all your official licensing requirements, tax ID, and any other necessary temporary permits, you should be legally ready to sell online, and/or in person! Yay!

But wait, not so fast...just because you're up to date now doesn't mean that you won't have to possibly make changes later on. Laws are constantly changing, and your business and products will likely change over time as well.

Because of this, you'll have to make sure to pay attention to local laws that may affect you so that your business continues to run legally at all times.

Frequently Asked Questions

Yes, you will need to get a tax ID number to sell crafts and collect sales tax. Once you register your business you will receive one. However, if you are operating as a sole proprietor then you can also use your social security number instead.
You need a business license to sell your art online and collect sales tax.
You can accept online payments up to $600 before receiving the tax form 1099-k. After that you are responsible for collecting sales tax on your handmade products.

Empowering Your Crafting Business

Wondering if you need a business license to sell crafts online when you're starting your small business might seem overwhelming, but it's really not a hard problem to fix!

Empowering yourself by researching your local laws and staying up to date will keep your business legally dialed in and prevent future fines.

Selling your handmade crafts online or at craft fairs is a fun and fulfilling way to grow your income, so be sure to set your future business up for success from the start.

Want some help getting your handmade business off the ground?

Reserve your free, no pressure Creative Clarity Call and let's talk about how working together can help get your crafty dreams to become reality!

Click to Book Your Free Creative Clarity Call!

Do I Need a Business License to Sell Crafts Online?