Setting up a handmade selling business, step by step

Start as a sole proprietor, and do it on purpose

The right first step for most handmade sellers is to do nothing at the state level: start as a sole proprietor, and put the effort into running the shop like a business.

That runs against most setup guides, which open with forming an LLC. The reason to wait is simple. A sole proprietorship already exists the moment you sell with a profit motive, it costs nothing to keep, and its tax filing is a schedule on your own return. An LLC adds a filing fee, recurring reports and, in some states, a flat annual tax that is owed in slow years too.

Starting as a sole proprietor does not mean being casual. The habits that make an LLC work later are the same habits that make a sole proprietorship work now: separate money, complete records, the right registrations and the right insurance. Get those right first and forming an entity later is a short, clean step.

The decision itself, and the events that should change it, are laid out on whether you need an LLC yet. Read that alongside this guide if you are still unsure which way to go.

The SBA says you are automatically considered a sole proprietorship if you do business activities but do not register as any other kind of business. — U.S. Small Business Administration, retrieved 2026-09-27

The IRS defines a sole proprietor as someone who owns an unincorporated business by themselves. — Internal Revenue Service, retrieved 2026-09-27

Separate the shop's money and records from the first sale

Open a checking account used only for the shop, route every payout into it, pay every shop expense from it, and keep a simple ledger. This is the most useful setup step and it costs nothing.

A dedicated account turns tax time from a hunt through personal statements into a printout. Every deposit is a sale and every withdrawal is a cost or a transfer to you. When the time comes to form an LLC, you open a new account in its name and the history stays clean.

The ledger does a second job: it is evidence. The first thing the IRS asks when deciding whether an activity is a business or a hobby is whether you keep complete and accurate books and records. A shop that tracks sales, platform fees, shipping and materials is showing exactly the conduct that question looks for.

Keep receipts for supplies in one place, paper or scanned. Record each sale with its date, channel, price and fees. A spreadsheet is enough for years, and those records matter as much as any tax form.

The IRS asks whether the taxpayer maintains complete and accurate books and records as the first factor in telling a business from a hobby. — Internal Revenue Service, retrieved 2026-09-27

Register the shop name if it is not your own name

In California, a sole proprietor trading under a name that does not include their surname files a fictitious business name statement with the county within 40 days of starting.

Other states have their own version, often called a DBA or assumed name, with their own deadlines. The California rule shows the shape of it. File with the county clerk where the business is based, then publish the notice in a local newspaper within 45 days. The filing lasts five years.

Pick a name you can live with for a while, because every later registration will carry it: the seller's permit, the bank account and, eventually, the LLC. If you change the name later, several of those filings change with it. The registration guide has the full California sequence.

40 daysCalifornia requires a fictitious business name statement to be filed no later than 40 days after the registrant starts transacting business. — California Business and Professions Code section 17910, retrieved 2026-09-27

Work out sales tax by sales channel

Sales tax depends on where each sale happens. Orders through a registered marketplace facilitator are the marketplace's to tax, while craft fair, website and in-person sales are yours.

List each channel you sell through. For the marketplace ones, confirm the platform collects and remits tax on your orders. For the rest, register with your state's tax agency before you make those sales. In California, a seller whose retail sales all go through a registered facilitator does not need a seller's permit. Anyone selling any other way does.

A California seller's permit is free, and a temporary one covers a single short event. Once you have a permit, you will file returns on the schedule the state assigns, and those returns include your marketplace sales as well as your own. Check each channel against that rule before your first sale outside the marketplace.

CDTFA says you are not required to hold a seller's permit if all of your retail sales of merchandise will be facilitated by a marketplace facilitator. — California Department of Tax and Fee Administration, retrieved 2026-09-27

$0There is no charge for a California seller's permit, though CDTFA may require a security deposit. — California Department of Tax and Fee Administration, retrieved 2026-09-27

Check local licensing and whether you can work from home

Most cities or counties require a general business license, and many regulate home businesses through zoning. Check both before your first craft fair or your first big shipment.

Home rules tend to focus on the effects of the business, not the business itself: customers visiting, signs, deliveries, noise, fumes. A jewelry maker packing orders at a desk is unlikely to trouble anyone. A glassblower with a kiln in the garage may need a specific permit or may not be allowed at all.

California's small business office sends home-based sellers to the local planning department to confirm their activities are permitted. The license and the planning check are usually one visit or one phone call.

California's small business office says most local governments require a business license, issued by the city in an incorporated area or the county in an unincorporated one. — California Office of the Small Business Advocate, retrieved 2026-09-27

Get ready for craft fairs before you book a booth

A craft fair is a retail sale by you, not by a marketplace, so it brings its own permit, its own tax rate and often an insurance requirement from the organizer.

In California, a seller doing a single event at one location for less than 90 days can use a temporary seller's permit. A seller doing three or more events in a 12-month period needs a regular seller's permit instead. If you already hold one for your website or in-person sales, it covers your fairs too.

The rate you charge is the rate where the fair is held. The statewide base is 7.25 percent, and district taxes raise it in most areas, so the figure can change from one weekend's fair to the next. Look up each event's address and write the rate on a card at the booth.

Organizers also collect seller details for the state, and many ask vendors for a certificate of general liability insurance. Sort both out when you apply for the booth, not on setup morning. Take a card reader, a price list that says whether tax is included, and a way to record each sale for your ledger.

90 daysCDTFA says a seller at a location for less than 90 days is a temporary seller and must hold a temporary seller's permit. — California Department of Tax and Fee Administration, retrieved 2026-09-27

7.25%California's statewide base sales and use tax rate is 7.25 percent, and in most areas local district taxes increase it. — California Department of Tax and Fee Administration, retrieved 2026-09-27

Decide how much of your home address goes on public record

Several setup steps can put your home address on a public record or a product label. Decide early whether you are comfortable with that, because changing it later means refiling.

A fictitious business name statement is a public filing with the county. A California LLC's agent for service of process is also public, and if you name yourself, your name and street address are what the public sees. Cosmetic labels are stricter still: FDA requires a street address for the maker or distributor, and says a post office box or a website is not enough.

For many makers working from home, none of this matters much. For others, especially those who sell at fairs where buyers can find a name and look it up, it matters a lot. The options are practical: a registered agent service for the LLC, a business address for labels and filings, or keeping the shop's public footprint limited to a marketplace profile.

Settle the address question before the fictitious name filing, because that is usually the first public record a sole proprietor creates. It costs far less to choose an address once than to change it on three filings.

FDA says a cosmetic label must carry a street address for the manufacturer, packer or distributor, and a post office box or website address is not adequate. — U.S. Food and Drug Administration, retrieved 2026-09-27

California's agent for service of process for an LLC may be an individual resident of the state or a corporation registered under Corporations Code section 1505. — California Corporations Code section 17701.13, retrieved 2026-09-27

Plan for self-employment tax and quarterly payments

Shop profit carries self-employment tax once it reaches $400 in a year, and if you expect to owe $1,000 or more at filing, the IRS generally expects quarterly estimated payments.

This is the step new sellers most often skip, because nothing forces it. No marketplace withholds tax from your payouts. The first sign of trouble is a large bill in April, sometimes with a penalty for underpaying during the year.

Set aside a share of each payout in a savings account, figure your payments with the Form 1040-ES worksheet, and pay on the four IRS due dates. The whole process is in the estimated tax guide.

Keep the 1099-K rules in mind too. A platform files one only when your payments pass $20,000 and 200 transactions, but you report all your income whether or not a form arrives.

A practical rhythm works well for most sellers. On the first of each month, total the previous month's sales and costs from your ledger, move the tax share into savings if you have not already, and note whether the quarter is running ahead of or behind your estimate. Four times a year, pay. Once a year, compare what you paid with what the return says you owed, and adjust the share for next year.

$400Self-employment tax is owed when net earnings from self-employment are $400 or more. — Internal Revenue Service, retrieved 2026-09-27

$1,000Sole proprietors generally must make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. — Internal Revenue Service, retrieved 2026-09-27

$20,000 / 200Payment apps and online marketplaces report payments on Form 1099-K when total payments exceed $20,000 in more than 200 transactions. — Internal Revenue Service, retrieved 2026-09-27

Match insurance and product rules to what you make

Product risk, not revenue, decides how much protection a handmade shop needs. Insurance covers harm your products cause, and federal testing rules apply to some product types regardless of size.

A product liability policy pays for claims that a product caused injury. It covers the shop whether it is a sole proprietorship or an LLC, which matters because an LLC does not protect a maker from claims about their own work. A homeowners policy is not built for business risk either, though a rider can add limited cover.

Some product types carry federal rules. Anything designed mainly for children 12 or younger needs a Children's Product Certificate based on third-party lab testing, with limited relief for small batch makers. Soaps, lotions and other cosmetics have labeling rules of their own. Each has its own page on this site, under costs and product risk.

The SBA describes product liability insurance as coverage against financial loss from a defective product that causes injury or bodily harm. — U.S. Small Business Administration, retrieved 2026-09-27

Domestic manufacturers of products designed primarily for children 12 or younger must issue a Children's Product Certificate based on testing by a CPSC-accepted third-party laboratory. — U.S. Consumer Product Safety Commission, retrieved 2026-09-27

Form an LLC when a real trigger arrives

Form the LLC when the shop takes on risk or obligations a sole proprietorship handles badly: a riskier product line, an employee, a partner, or contracts such as wholesale accounts or a studio lease.

At that point the entity behind the shop starts to matter, and the filing is straightforward. In California it is Articles of Organization on Form LLC-1, for a $70 fee to the Secretary of State. You can file it yourself on bizfile Online or have a formation service prepare and file it. Either way, the state fee is the same.

Every California LLC names an agent for service of process: a California resident, which can be you, or a registered corporate agent. If you name yourself, your name and address go on the public record, which is why some home-based sellers pay for an agent service.

Before filing, count the recurring cost. A California LLC owes the $800 annual tax every year it exists, plus a $20 statement of information every two years. The formation-services comparison lists what services charge next to filing it yourself.

$70The California Secretary of State charges $70 to file Articles of Organization on Form LLC-1. — California Secretary of State fee schedule, retrieved 2026-09-27

A California LLC's agent for service of process must be an individual resident of California or a corporation that has complied with Corporations Code section 1505. — California Corporations Code section 17701.13, retrieved 2026-09-27

$800California's annual LLC tax is set by reference to the $800 minimum franchise tax. — California Revenue and Taxation Code section 23153, retrieved 2026-09-27

After forming, move every account and registration across

A new LLC is a new legal person, so the shop's accounts and registrations need to move to it. Do the moves in one short batch within weeks of forming.

Start with the initial statement of information, due within 90 days of filing the articles. Get an EIN for the LLC; it is free from the IRS, and banks and state agencies expect one. Open a bank account in the LLC's name and point marketplace payouts at it.

Then update the registrations. A seller's permit and a fictitious business name belong to the owner who filed them, so the LLC generally needs its own. Update the shop's legal name and tax details on each marketplace, and move insurance to name the LLC.

For federal income tax, very little changes. A single-member LLC is disregarded by default, so the shop still goes on your Schedule C.

90 daysCalifornia requires an LLC to file a statement of information within 90 days after filing its original articles of organization, and biennially after that. — California Corporations Code section 17702.09, retrieved 2026-09-27

$0The IRS says you never have to pay a fee for an EIN and that approved online applications receive the EIN immediately. — Internal Revenue Service, retrieved 2026-09-27

A single-member LLC is disregarded as separate from its owner for income tax purposes unless it elects corporate treatment on Form 8832. — Internal Revenue Service, retrieved 2026-09-27

Review the structure every year when you file

Once a year, when you prepare your return, check the shop against the triggers: product risk, employees, partners, contracts, and profit high enough for an S corporation election to be worth modelling.

Use the return itself as the prompt. Schedule C shows the year's profit, your records show which products you sold and to whom, and your calendar shows any contracts or staff you took on. Those three things answer most of the trigger questions in ten minutes.

Most years the answer will be to keep going as you are. That is a legitimate outcome, not a failure to grow up. The review exists so the decision to form, or to elect S corporation tax, is made on this year's numbers rather than on advice written for someone else's business.

If the shop is profitable enough that self-employment tax is a large line on your return, read the entity comparison and take the numbers to a tax professional before filing Form 2553. The election adds payroll and a corporate return every year after, so the saving has to clear that cost.

A corporation elects S corporation status by filing Form 2553, signed by all shareholders. — Internal Revenue Service, retrieved 2026-09-27

Questions