These are three areas that will change with your situation and where you live and do business.

Up front, I am not giving legal advice.

I am not qualified.  

The best that I can do is tell you what I have done.

Taxes:  Pay your taxes! 

There are a number of tax types, Federal Income Tax, State Income Tax, Merchant Sales Tax, Unemployment Insurance and Worker Compensation.

I have no employees, so the only taxes I pay are Federal Income Tax, State Income Tax and Merchant Sales Tax.

Each quarter I make an estimated payment for federal and state taxes.

I keep my check book on Quicken and at the end of the year total up income and expenses and take it to an accountant. 

The accountant then tells me whether my estimated payments cover taxes owed.  If I owe taxes, then on April 14th I write out checks to Federal and State.

State taxes vary from state to state so you'll want to check this out. 

Stay on top of your taxes.  Back in the 1970's I got audited by the IRS.  They figured out that even though I had the taxes prepared by a CPA, I owed $400.00. 

My thought was, "it could be worse".  Guess what, it was worse once they added penalties and interest.  The total was about $800.00. 

In the end, no matter who does your tax preparation you are responsible.

People have suggested that I use something like Turbo Tax to do my taxes.  I still prefer to have someone that knows what they are doing signing their name at the bottom of the tax forms. 

The only other tax I pay is Indiana State Sales Tax.  This really isn't a tax, since I've collected the sales tax on each sale to residents of Indiana.

Indiana has a simple form to fill out asking for overall sales and taxable sales for a specific period.

Currently there is no sales tax collected on out of state sales.

If I'm doing an arts and craft festival, I collect sales tax on each sale.  If I'm doing a show in Michigan I'll want to know the sales tax rate for Michigan and collect sales tax and then mail it in to the State of Michigan. 

If it's a large show the state may send someone around to collect your name and give you a form and where to send the sales tax. 

This varies from state to state.

(If you have your work in a shop or gallery on consignment, they collect the sales tax - so this is something you don't have to bother with.  The same is true when you wholesale.)

To summarize: 

Federal Income Tax:  Total your income and expenses and take to your accountant.

State Income Tax:  Total your income and expenses and take to your accountant.

State Sales Tax:  Record total sales and taxable sales.

Send the state a check for the sales taxes you've collected.

The Internet and Sales Tax:  Currently (2/20/10) there is no sales tax charged on sales shipped out of state that I am aware of.  However, that will eventually come into play and hopefully there will be some software available that will allow people like you and me to do the calculations since the percentage of sales tax varies from state to state.

I repeat what I said at the beginning - Pay Your Taxes.

Employees:  If you have employees you'll want to check into Unemployment Insurance and Workman's Compensation.  In addition there are payroll taxes to be paid by you and your employee.  Again, your accountant will be able to give you that information.

Your accountant can give you the information and forms for doing whatever you have to do.

Since I don't have any employees I have no knowledge of this.

Licenses:  In Indiana you need a merchant license, which is a license to collect sales tax.  We've already covered this.  You'll need to contact the state to obtain a license.  There is no charge for this in Indiana.

Here in Brown County Indiana, in the village of Nashville, there is an individual business license.  It's a yearly fee of about $25.00.  I no longer have a retail shop so I don't pay this fee.

Where you are located there might be various licenses that are specific to your locale.  You may want to check with other artist and craftsperson's in your area for information.

Insurance:  I have a business plan that covers the building I work in, my tools and equipment and the video and computer equipment. 

According to the agent I work with, if a computer is used for business (even minor use) it is not covered by a home owners plan.

Insurance varies from state to state and company to company so check with your agent.

Several craftspeople I know have an "artist craft" type plan which is quite inclusive.  You can do some research on this at different art and craft web sites and also in some publication, one being "Sunshine Artist" which is primarily for people doing shows.

Again, I'm not offering legal advice.  I'm just telling you what I do in regard to Taxes, Licenses and Insurance. 

In the end it comes down to you being responsible for your own business.

The question:, What if this is just a hobby and your are selling just a few pieces each year? 

Since I've been doing this full time since 1973, I don't know the answer to this. 

It would seem that you could sell a few pieces without all the legalize and paper work, but again, I don't know the answer to this.

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