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Hi Dave,
As someone who has been full time in custom knives for the past 12 1/2 years, I understand your question completely
Two thing;
1) The quicker you become a business the quicker you will make more money and take advantage of the numerous tax breaks out there.
2) Find a CPA locally and buy an hour of his time. Each state has its own guidelines for a business. The CPA will provide you with the best way to structure your business to best take advantage of the opportunities for business's.
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