# When does it become selling?



## MickeyRat (Apr 16, 2021)

So far, I've been strictly a hobbiest and I've never taken money for my soap.  I give it away to just about anyone that will take it.  Now I have a crazy situation.  I stayed at an Airbnb and left a few bars for my host.  He's a dedicated host and he will do just about anything to make staying in his places better for his guests.  He LOVES my soap and he really wants me to make soap he can leave for his guests.  This guy is persistent.

So, is there a way to do this without selling?  Could he buy some ingredients for me?  Could he buy equipment, funnels, bowls, etc.?  Even if I'm not charging him anything, when he leaves it for his guests, is he selling?


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## KimW (Apr 16, 2021)

While bartering sounds like a good option, my concerns would be insurance and labeling.  Both because you never know what a guest might be allergic to, and in the end you'll be the one liable for your soap, even if the soap is provided by the Airbnb host.  Just my thoughts.

ETA:  I didn't answer the ultimate question.  Selling, by definition, entails the exchange of currency for a product.  So, if you barter you aren't selling.  However...see my original blah, blah, blah.


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## ImpKit (Apr 16, 2021)

KimW said:


> While bartering sounds like a good option, my concerns would be insurance and labeling.  Both because you never know what a guest might be allergic to, and in the end you'll be the one liable for your soap, even if the soap is provided by the Airbnb host.  Just my thoughts.
> 
> ETA:  I didn't answer the ultimate question.  Selling, by definition, entails the exchange of currency for a product.  So, if you barter you aren't selling.  However...see my original blah, blah, blah.



Technically may not be selling, but as you say: liability. If you make the soap then you are liable for it. Your own personal liability insurance (found on your homeowner's and/or renter's insurance policies typically) won't provide you products liability for your soap, at least not for this situation (if you remain STRICTLY a hobbyist and never accept goods, services, or money in trade, it MIGHT be covered). 

If you aren't interested in procuring the necessary insurance policy or rider, then I would caution against this kind of barter. It's flattering but risky. And AirBnB is ALREADY an insurance nightmare / risk. Honestly I would encourage the guy to learn to make it himself. If you'd be willing you could even give him your recipe so he is making the exact same formulation. Show him the books, sites, and YouTube videos he'd need to learn the process. Maybe you'll make a soapy friend!


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## KimW (Apr 16, 2021)

ImpKit said:


> Technically may not be selling, but as you say: liability. If you make the soap then you are liable for it. Your own personal liability insurance (found on your homeowner's and/or renter's insurance policies typically) won't provide you products liability for your soap, at least not for this situation (if you remain STRICTLY a hobbyist and never accept goods, services, or money in trade, it MIGHT be covered).
> 
> If you aren't interested in procuring the necessary insurance policy or rider, then I would caution against this kind of barter. It's flattering but risky. And AirBnB is ALREADY an insurance nightmare / risk. Honestly I would encourage the guy to learn to make it himself. If you'd be willing you could even give him your recipe so he is making the exact same formulation. Show him the books, sites, and YouTube videos he'd need to learn the process. Maybe you'll make a soapy friend!


Great suggestion to teach him to make his own soap, Impkit!


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## earlene (Apr 16, 2021)

MickeyRat said:


> So far, I've been strictly a hobbiest and I've never taken money for my soap.  I give it away to just about anyone that will take it.  Now I have a crazy situation.  I stayed at an Airbnb and left a few bars for my host.  He's a dedicated host and he will do just about anything to make staying in his places better for his guests.  He LOVES my soap and he really wants me to make soap he can leave for his guests.  This guy is persistent.
> 
> So, is there a way to do this without selling?  Could he buy some ingredients for me?  Could he buy equipment, funnels, bowls, etc.?  Even if I'm not charging him anything, when he leaves it for his guests, is he selling?


Good to see you again, MickeyRat.  It's been awhile.


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## amd (Apr 16, 2021)

I have a friend who has an airbnb that I provide soap for. I texted her quick and fortunately she wasn't doing anything and replied back quickly. She said in this case, although it may vary from state to state or by insurance, the soap becomes her property and her legal responsibility if something goes wrong with a guest. This is one of the reasons she asks me to clearly label the soap with the ingredients so that her guests can make informed choices. (She does also offer other choices of commercial soap or travel size body wash, but in the 9 months that she has put out my soaps, only one or two guests have taken the other options.)

Liability aside, if you're not interested in "selling" and getting paid for your time, knowledge and skill, then I would set it up as a reimbursement for COG. Figure out how much it costs for however many batches your friend wants, and he can reimburse you for that cost only. Be very upfront about how much you willing to make for him - if his airbnb is well trafficked it may be more soap than you're willing to make, so set limits that are manageable for you. Say you have the equipment, time and materials to make 3 batches at once, and you're comfortable doing that once a month, then tell him that is what you'll do. Or every 3 months, whatever. Make sure he understands the wait time for soap - I have to remind my friend of this almost every time she orders and she's finally catching on, she ordered her spring themed soaps in January, lol. If you're on the fence, I say try it for six months and if it's not working for you, it's your perogative to tell him no.


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## Babyshoes (Apr 16, 2021)

If you're in the UK, the rules are different, so be sure the advice you've received so far is relevant to where you are...


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## Relle (Apr 16, 2021)

Babyshoes said:


> If you're in the UK, the rules are different, so be sure the advice you've received so far is relevant to where you are...


The OP is in the US.


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## MickeyRat (Apr 17, 2021)

Thanks for the replies folks.  I'm still not sure where I'm going with this.  Don't worry about over committing.  If I give him any, it'll just be what I'm willing to make.  I'm comfortably retired.  I'm not looking for a new career.  My wife wants some smaller soaps.  So, I'm going to try something next week to see how it turns out.

Babyshoes - Thanks for the reminder that I'm in an international venue.  I should have specified that I'm in the US.


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## Babyshoes (Apr 17, 2021)

Relle said:


> The OP is in the US.



That has become apparent, but others looking for answers to this question might not be.


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## Arimara (Apr 20, 2021)

@amd What's COG stand for?


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## ImpKit (Apr 20, 2021)

Arimara said:


> @amd What's COG stand for?



Cost of goods


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## KimR (Apr 21, 2021)

I recently stayed at an AirBNB in Bloomington, IN. Loved this small guest sized soap from a local shop that was left for my use. ~1.5 X 1.5 X .25" in a package that listed real ingredients vs proper chemical labels. Very little waste. Perfect size.


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## Zany_in_CO (Apr 23, 2021)

@amd Excellent advice! 

@MickeyRat I'm retired too. When I first started selling I promised myself if my hobby ever got to a point where it became more W-O-R-K then pleasure, I would quit selling. So, when it did, I did! LOL

I was in your shoes once. Bottom line, if you price it at exactly what it would be worth to you to provide soap for him, it will likely be more than the buyer wants to pay. 
Put the ball in his court.


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## MickeyRat (Apr 25, 2021)

Zany_in_CO said:


> I was in your shoes once. Bottom line, if you price it at exactly what it would be worth to you to provide soap for him, it will likely be more than the buyer wants to pay.
> Put the ball in his court.



If I do this at all, my intention is to have it be on a friendly basis.  I finally actually figured out what it costs me to make.  So far, I've just had a vague idea.  He knows that I'm going to some trouble for him.  He's not placing an order, he's asking for a favor from a friend.  If he wants to send me a gift, cool.  If he doesn't, that's cool too.  However, if I feel he's presuming on the relationship, I might not do him the favor next time.


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## TheGecko (Apr 25, 2021)

MickeyRat said:


> So, is there a way to do this without selling? Could he buy some ingredients for me? Could he buy equipment, funnels, bowls, etc.? Even if I'm not charging him anything, when he leaves it for his guests, is he selling?



Don't you mean, "am I selling"?  

Under the conditions stated above, the short answer is no...it would be no different if you were a cook in a restaurant or a volunteer at a charity shop.  the taxman will not come after you, even if you were being reimbursed for the cost of ingredients.  However, if you are being compensated for your labor...either in cash or 'like' (discount on room rate, box of chocolates)...then that would be considered "Other Income".  But it is doubtful that the taxman will hunt you down.

But you do have an issue of product liability.  I have a company that buys soap from me and sells it under their own label.  If for any reason one of their customers was injured by the soap...I could still be sued, even though my name is not on the soap.



KimW said:


> Selling, by definition, entails the exchange of currency for a product. So, if you barter you aren't selling.



Not true.

_IRS Tax Tip 2013-29, March 8, 2013

Small businesses sometimes barter to get products or services they need. Bartering is the trading of one product or service for another. Usually there is no exchange of cash. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services.

The IRS reminds all taxpayers that the fair market value of property or services received through a barter is taxable income. Both parties must report as income the value of the goods and services received in the exchange._

I currently issue and receive two Form 1099-Bs (Proceeds from Broker and Barter Exchange Transactions) from my landscaper and hair dresser.  In exchange for mowing my yard and trimming my bushes, and cuts/color...I provide bookkeeping services.


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## cmzaha (Apr 25, 2021)

I would not worry about the Tax man hunting you down, but I would worry about liability. If someone were to sure believe me they will go right down the chain of command, so to say. They will start with the supplier and go down to the manufacturer. So please acquire insurance if you want to supply the AirBnB


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## MickeyRat (Apr 25, 2021)

cmzaha said:


> I would not worry about the Tax man hunting you down, but I would worry about liability. If someone were to sure believe me they will go right down the chain of command, so to say. They will start with the supplier and go down to the manufacturer. So please acquire insurance if you want to supply the AirBnB



That's the same risk every soap maker takes when they give their soap to a friend.  It's the risk I take when I bring soap to the ladies at the dentist's office.  I would think personal liability insurance covers this.


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## VikingChick (Apr 25, 2021)

TheGecko said:


> _The IRS reminds all taxpayers that the fair market value of property or services received through a barter is taxable income. Both parties must report as income the value of the goods and services received in the exchange._


Geez. Leave it to the IRS to try to steal a piece of the action, even when there’s no money involved.


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## TheGecko (Apr 25, 2021)

VikingChick said:


> Geez. Leave it to the IRS to try to steal a piece of the action, even when there’s no money involved.



Barter has the same value as money.


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## VikingChick (Apr 25, 2021)

TheGecko said:


> Barter has the same value as money.


Oh, I know. I just get tired of being taxed for everything.


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## TheGecko (Apr 25, 2021)

VikingChick said:


> Oh, I know. I just get tired of being taxed for everything.



I agree...my state has been nickel and diming us to death these last several years and it is getting worse because of the pandemic.


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## ImpKit (Apr 26, 2021)

MickeyRat said:


> That's the same risk every soap maker takes when they give their soap to a friend.  It's the risk I take when I bring soap to the ladies at the dentist's office.  *I would think personal liability insurance covers this.*



Speaking from a former background in insurance (I left the industry in 2010 so this IS 11 years old; I also held my license in Texas so not necessarily applicable everywhere) with a specialty in small business policies... I would recommend you check with your insurance provider, and _get their answer in writing_. I agree that giving soap to friends or associates, like the ladies at the dentist's office, is likely to be covered under personal liability. But if you make soap for a business owner, fully aware that they will be using the product to support their business, your personal liability may choose to exclude coverage for this. Even without an exchange of good/services/currency, your insurance policy can declare that a manufacture of goods that isn't covered under personal liability. And whether it will be covered or not will vary from insurance provider to insurance provider and the specifics of the type of policy you have.


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## MaryinOK (Apr 26, 2021)

KimW said:


> While bartering sounds like a good option, my concerns would be insurance and labeling.  Both because you never know what a guest might be allergic to, and in the end you'll be the one liable for your soap, even if the soap is provided by the Airbnb host.  Just my thoughts.
> 
> ETA:  I didn't answer the ultimate question.  Selling, by definition, entails the exchange of currency for a product.  So, if you barter you aren't selling.  However...see my original blah, blah, blah.



Actually, taking **any* "consideration" is considered selling by the IRS and Tax Commision, whether it be in cash or goods. OP needs to check with her State Tax Commission about sales tax also. Another way to approach it is for the BnB owner to provide ALL the ingredients (thus paying the sales tax) and the OP to charge for her time as an independent contractor. Then that is declared on her regular taxes as income.


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## AliOop (Apr 26, 2021)

@ImpKit and @MaryinOK my cold attorney heart was warmed by each of your cogent, reality-based responses - thank you!! The only tweak I would make to Mary's response is that one generally cannot charge hourly as an independent contractor; normally one must charge a flat fee for the work (or for each segment of work), no matter how long the work, or segment of work, may take to complete. That risk factor - potential profit or loss due to the flat fee - goes to the very heart of the definition of an IC.


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## ImpKit (Apr 26, 2021)

AliOop said:


> @ImpKit and @MaryinOK my cold attorney heart was warmed by each of your cogent, reality-based responses - thank you!! The only tweak I would make to Mary's response is that one generally cannot charge hourly as an independent contractor; normally one must charge a flat fee for the work (or for each segment of work), no matter how long the work, or segment of work, may take to complete. That risk factor - potential profit or loss due to the flat fee - goes to the very heart of the definition of an IC.



Okay, completely off topic but... why can't an independent contractor charge hourly rates? If that's the contract they negotiate and such, with the rates spelled out, I would assume it would be allowed.

If you don't want to further hijack the thread to answer, and you're willing to!, then I would be entirely open to a PM with the answer. It really is just to sate my curiosity.


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## AliOop (Apr 26, 2021)

ImpKit said:


> Okay, completely off topic but... why can't an independent contractor charge hourly rates? If that's the contract they negotiate and such, with the rates spelled out, I would assume it would be allowed.
> 
> If you don't want to further hijack the thread to answer, and you're willing to!, then I would be entirely open to a PM with the answer. It really is just to sate my curiosity.


It is part of the IRS definition that a true independent contractor has to bear risk of loss or gain. Charging by the hour eliminates or greatly reduces that risk. In contrast, charging by the project, or segment of project, means that the maker bears the risk of loss or gain - because the project might end up taking much longer, or taking far less time than anticipated. Also, who bears the risk that the project materials might break, or in the case of soap, need to be replaced due to a failed/spilled/stolen batch? If it is not the person making the item, then that person probably isn't an independent contractor.

Sometimes it is easier to understand from the perspective of the employer-employee relationship. The employee gets paid no matter how long it takes, whereas the employer may lose money (i.e., not get "paid") if the project runs over budget. Thus, the employee has no risk, and the employer has all the risk (but also stands to gain the reward if the project goes well).

Bottom line, if the person doing the work isn't bearing the financial risk, then the worker is almost certainly going to be classified as an employee, not an independent contractor. There are other factors that play into this, but that's a really big one that will make or break the categorization. And that categorization matters a lot, since it affects who is responsible for withholding and depositing payroll taxes, whether the payee is responsible for paying all or only half of the Social Security withholding, whether the payor must provide worker's compensation insurance, and the like. It's a sticky wicket, for sure.

HTH.


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## ImpKit (Apr 26, 2021)

Intriguing! Thank you very much @AliOop!


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## Susie (Apr 27, 2021)

I was in a similar situation, and I am one of those "If I do it, it must be legal six ways from Sunday" kinds of people. I got around all the folderol by having the business owner purchase all the supplies (oils, NaOH, heat shrink bags, EDTA, micas, fragrance, etc), while I provided all of the equipment and my time. She provided the labels (to my specification) and we had a contract that stated she would assume all liability.  In exchange, I got free services for a specific portion of time (massages to give as gifts). It was legal according to her attorney and mine. And now I have experience doing this and a boiler plate form for the next time.

And thank you for the idea of approaching the AirBnB people locally! If I can ever get this ankle/foot healed, I may follow up on this.


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## Zany_in_CO (Apr 27, 2021)

Susie said:


> we had a contract that stated she would assume all liability.


This is similar to the agreement I had with my wholesale customers.


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## Juggsy (Apr 27, 2021)

Susie said:


> ... and we had a contract that stated she would assume all liability.  In exchange, I got free services for a specific portion of time (massages to give as gifts). It was legal according to her attorney and mine. And now I have experience doing this and a boiler plate form for the next time...


What if there was a written contract between the two parties where one party assumes liability?
Would that be a way around the issue of liability?  Not sure what laws are but theoretically wouldn't this be ok?
I ask because (for example) we have to sign liability waivers to participate in certain things.


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## ImpKit (Apr 27, 2021)

The assumption of liability and the responsibility thereof by the AirBnB operator for any injuries received by or inflicted on their clientele is... tricky to me. Because that's a contract between you and the operator, not between you and the injured parry (guest). So if the guest retains a good lawyer and never sues the operator but only goes after you... will the court review your contract and dismiss a case against you telling them to go for the operator?

My gut says no. My gut says what happens is you get sued, you get a judgment against you, one your insurance still won't cover so it's entirely out of pocket. And then you have thy laborious process of filing against the operator with whom you contracted. And THEIR insurance may not be rated to cover this. So you could get screwed since it's now out of pocket for them too.

I'm not a lawyer. I could be way off base. But this is the concern I have with this assumption of liability contract. Because it's really only between two parties and supplying to a hotel service involves a third, non contract, party.

@AliOop can you comment perhaps?


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## earlene (Apr 27, 2021)

AliOop said:


> It is part of the IRS definition that a true independent contractor has to bear risk of loss or gain. Charging by the hour eliminates or greatly reduces that risk.


When I worked for a Nursing Registry, we were categorized as IC's.  The pay was hourly.  Granted that was decades ago. but the IRS guidance in 2018 still allows that, with some reservations.

Not meaning to through a monkey wrench into the works, but it seems there are some variables.


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## AliOop (Apr 27, 2021)

earlene said:


> When I worked for a Nursing Registry, we were categorized as IC's.  The pay was hourly.  Granted that was decades ago. but the IRS guidance in 2018 still allows that, with some reservations.
> 
> Not meaning to through a monkey wrench into the works, but it seems there are some variables.


Yes, some specific unions have gone to bat for their folks, and carved out exceptions for some per diem and hourly workers, including nurses, doctors, and a few other professionals. But for the type of work being asked about in the original post, no such exceptions exist.



ImpKit said:


> The assumption of liability and the responsibility thereof by the AirBnB operator for any injuries received by or inflicted on their clientele is... tricky to me. Because that's a contract between you and the operator, not between you and the injured parry (guest). So if the guest retains a good lawyer and never sues the operator but only goes after you... will the court review your contract and dismiss a case against you telling them to go for the operator?
> 
> My gut says no. My gut says what happens is you get sued, you get a judgment against you, one your insurance still won't cover so it's entirely out of pocket. And then you have thy laborious process of filing against the operator with whom you contracted. And THEIR insurance may not be rated to cover this. So you could get screwed since it's now out of pocket for them too.
> 
> ...


Third-party liability issues are complex, but in the US, and more so in some states than others, the manufacturer always has liability for a "defective" or injurious product, even though the manufacturer never had any direct contractual relationship with the end user. The public policy behind this rule of law was to incentivize safety; otherwise, if the manufacturer were shielded, less ethical folks would never bother with product safety. Why should they if they could never be held liable by the person who was injured?


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## Susie (Apr 28, 2021)

AliOop said:


> Yes, some specific unions have gone to bat for their folks, and carved out exceptions for some per diem and hourly workers, including nurses, doctors, and a few other professionals. But for the type of work being asked about in the original post, no such exceptions exist.
> 
> 
> Third-party liability issues are complex, but in the US, and more so in some states than others, the manufacturer always has liability for a "defective" or injurious product, even though the manufacturer never had any direct contractual relationship with the end user. The public policy behind this rule of law was to incentivize safety; otherwise, if the manufacturer were shielded, less ethical folks would never bother with product safety. Why should they if they could never be held liable by the person who was injured?



OK, so I am never going to end up making soap as a sideline. I am OK with that, I guess. I know I make safe soap, because I test that soap first before it ever goes into the shrink wrap. But we have such a litigious society...

Thank you for letting us know, though! It makes all the difference in the world to hear from someone who is willing to be honest with you!


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## AliOop (Apr 28, 2021)

Susie said:


> OK, so I am never going to end up making soap as a sideline. I am OK with that, I guess. I know I make safe soap, because I test that soap first before it ever goes into the shrink wrap. But we have such a litigious society...
> 
> Thank you for letting us know, though! It makes all the difference in the world to hear from someone who is willing to be honest with you!


I really don't want to discourage you from selling! Good insurance normally takes care of both the court judgment and the legal fees, so I always recommend having that, even before getting an LLC or corp.

An LLC or corp may protect you from being personally liable for a court judgment, but if you don't have insurance, you must pay all the legal fees out of pocket - including the fees to get yourself personally dismissed from the court case when they sue you as an individual, rather than suing your LLC (happens all the time, believe me). Also, if one does not keep proper separation of accounts so that personal finances aren't commingled with LLC/corp finances, a good lawyer can get around an LLC or corp in about a minute. Many small business owners overlook this and find themselves opened up to personal liability as a result, despite having an LLC.

That's why good liability insurance is so, so important, unless your finances are such that you are able and willing to file bankruptcy if someone sues you. There are some people for whom that would make more sense, honestly, because they have no assets and no money for insurance. 

Bottom line, every person who wants to sell products should pay for an individualized appointment with a CPA or attorney who specializes in advising small businesses. That person can help you figure out whether you need just insurance, or insurance + an LLC, and if the latter, how to manage the books so that the LLC actually provides legal protection for you.


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## ImpKit (Apr 28, 2021)

AliOop said:


> I really don't want to discourage you from selling! Good insurance normally takes care of both the court judgment and the legal fees, so I always recommend having that, even before getting an LLC or corp.
> 
> An LLC or corp may protect you from being personally liable for a court judgment, but if you don't have insurance, you must pay all the legal fees out of pocket - including the fees to get yourself personally dismissed from the court case when they sue you as an individual, rather than suing your LLC (happens all the time, believe me). Also, if one does not keep proper separation of accounts so that personal finances aren't commingled with LLC/corp finances, a good lawyer can get around an LLC or corp in about a minute. Many small business owners overlook this and find themselves opened up to personal liability as a result, despite having an LLC.
> 
> ...



Absolutely agree!

I would add that from an insurance perspective there can be, and often is, a difference between manufacturing and selling. So be sure that what you are doing isn't going to be excluded from the terms of the policy you are covered under.

As hobbyists our personal liability policies (see your homeowner's or renter's policies for this coverage in most cases) won't cover manufacturing typically. So even if you don't sell it, if it's just gifted, if it's at a level your policy may consider manufacture... you could be in trouble. Which is why I express concern for making a bulk product, to order, for a business entity like the AirBnB operator. Because regardless of whether you receive goods, services, or currency... or none of that!... in compensation, you've manufactured a product.


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