Who Owns Jewelry Photos?

Dear Rich: Help. Who owns the photos that a photographer took of my jewelry. She claims she owns the rights and can reproduce the pictures at her website? How can that be? We've discussed this issue before at our crafts site.

Claiming Glazing Technique as Trade Secret

Dear Rich: I have a crafts business and I've developed some ceramic glazing techniques that are pretty unique. I took on an assistant in 2008 and trained her to do these techniques. I've always told her not to tell anyone about the process or materials used in the glazing and as far as I know she never has. The trouble is that she has gone out on her own and is now competing against me at local fairs and stores using some of these glazing techniques. Is there anything I can do? Maybe. If you can claim that the techniques are your trade secrets, you may be able to prevent your former assistant from using them. As we explain here, you need to prove that the process is not generally known within your industry and that you've taken reasonable steps to keep it confidential. Here is an article detailing the steps you should take if a secret is stolen (and you can follow up with a cease and desist letter). You don't have to have a nondisclosure agreement (NDA) with your former assistant because most states have laws in place that prevent trade secret misappropriation (theft).  It may also make a difference if the assistant is characterized as an employee or as a contractor. By the way, in the future, you might want to use an NDA and at this site we've provided a basic one (click on the section titles for explanations) as well as a selection of specialty NDAs. Also, if the assistant has copied any of your ceramic imagery or copyrightable designs, you may be able to pursue the assistant under copyright law. Check out our crafts law book for more details.

Crafts Inventory and Taxes

Dear Rich: I have been making crafts for gifts for many years. Over the years I have accumulated much inventory, including several sewing machines, yards of various fabrics and ribbons, etc. I have recently decided to start a business selling on etsy.com. When doing my taxes, how do I claim the existing inventory accumulated over the last 20 years, much of what I will use in my new business? WARNING! Entry may cause drowsiness. Do not read while driving.
Right, you had a question. Short answer: You probably can't count your 20 years of supplies as inventory unless you have incorporated those materials in finished (and unsold) works or works in progress.
The Basic Inventory Rules.  Inventory includes completed but unsold crafts work, raw materials used to create the crafts work, crafts works in process and certain supplies that become part of your crafts work. In other words it's all the stuff you've created that's unsold as well as all of the direct costs to make that stuff. The IRS wants you to calculate your inventory value (or "cost of goods") at the beginning and ending of each tax year. These costs include:

• the money spent on materials that become an integral part of the finished product, or materials consumed in the manufacturing process and are identified with the crafts goods
• the money spent on labor associated with each crafts items -- payments for employees, contractors, payroll taxes, etc.
• indirect costs necessary for production of each item other than direct production costs. (You may not have any of these unless you can calculate things like variable and fixed overhead expenses).

If you don't know how to calculate the direct costs of materials and labor for your goods, there's an explanation in our book for crafts artists as well as the explanation in this IRS circular.
Can you deduct 20-year old ribbon and fabrics? Although we talked about raw materials as part of the inventory, the IRS position seems to be that only finished (or partly finished) merchandise should be included in inventory. According to Code of Federal Reg. 1.471.1, raw materials and supplies should only be included in inventory to the extent that the goods have been acquired for sale or will physically be part of the merchandise intended for sale. So, unless your past purchases are incorporated in finished works or works in progress, they should not be counted as inventory. 

What about sewing machines and other equipment? Sewing machines and other equipment used in production are considered to be long-term assets (assets with a useful life of more than one year). They can be deducted in one year under Section 179, or they can be depreciated.

When tax time arrives ... you may want to consult a tax expert, at least for the first year you calculate inventory. Your beginning inventory for subsequent years will be your ending inventory for the previous year.