Finally starting a business

Discussion in 'Accounting and Legal Advice' started by l4catz, Nov 15, 2006.

  1. l4catz

    l4catz New Member

    Hello everyone,
    I am about to "officially" start a small business (sole proprietorship). I have been selling my products for several monthes and since I seem to be doing okay with it, I decided to make it official. I will be claiming all of the money that I have received so far as income and I will pay whatever taxes I have to. I want to do things the right way because I was audited last year. NOT FUN!
    I am sure that my "friends" at the IRS will being watching this year too and I want to get it right. I am going Monday to register my business name. Then, I guess I need to get a Tax ID number from the comptrollers office.
    Do I need to get a Federal ID number if I don't have any employees? Can anyone tell me what else I need?
    As a sole proprietorship do I have to pay myself a salary or do I just pay a percentage of the businesses yearly earnings into medicare and SSA? Can I write myself checks for cash out of the businesses earnings since it is all included in my personal income anyway or do I have to have a legitimate expense...gas receipts, supplies or whatever to be reimbursed for.
    Also do you know if I can claim deductions for business related items (computer, camera, supplies, etc) that I bought this year but before the business was "official"?
    Thanks for the help
  2. wealthymarket

    wealthymarket New Member

    If it is just a sole proprietorship, you can technically just use your SSN, but it can get really tricky. I recommend simply filing for an EIN (that's a business tax id) over the phone. Just go to the IRS website, look up EIN, and call the phone number. You can be set up for one in about 8 minutes. [​IMG] Piece of cake, and that way you will be able to keep that income separate from your SSN, making everything easier to report for taxes accordingly. [​IMG]

    I'd also recommend, if you don't already, having a separate bank account...and making an LLC or something of the sort. LLC's will cost a filing fee (which varies greatly by state), but--again--if you're concerned with filing taxes properly...especially if you're under scrutiny...then you may want to have the LLC. Just keeps everything cleaner and easier to report. That way they don't try to whack you on anything...they're not exactly the most honest people, either. So, if you're so spotlessly clean that they can't mess you over at all, then you're all on the up and up. :-D Hope that helps!
  3. dmitch31

    dmitch31 New Member

    If you are a sole proprietorship, then as far as the IRS is concerned, YOU ARE the business. Your finances and your business finances are one in the same. Now, that's not to say that you might not have a separate bank account for your business, but the business' income is YOUR income, and the business' expenses are YOUR expenses.

    You don't have to write yourself a check or pay yourself, or anything like that. The net profit from your business is your net income and you pay taxes on it just like any other income. Check the IRS documentation to see about paying your own taxes on either a quarterly or monthly basis. If you wait until the end of the year, you'll incur a penalty.

    An LLC (Limited Liability Company) doesn't change your financial position either. You and the business are still one and the same financially, however, it can serve to limit your losses should you be sued for something business related. You do not have to form an LLC to keep your personal and business finances separate, however. I wouldn't get hung up on the LLC thing. Talk to your accountant and get advice from him/her on whether or not that may be helpful.
  4. adelacnicolas

    adelacnicolas New Member

    On claiming salary, I think the bottomline is the same. If you claim salary and make it as part of your deductible expense (i.e., deductible from taxable gross business income), then you will also have to pay income tax on the salary you receive, thus to simplify, it is better not to show it as a salary for yourself but just pay tax on your NET/bottom income (gross of your desired salary) which gives you the same effect.

    In claiming deductible expenses on your business, always the accounting principle is that the expenses you are claiming SHOULD be related to your business operations (in short, even if you and your business is the same identity, you cannot claim household expenses as they are personal and not business-related).

    Accordingly, if you buy equipment or furniture (which are considered as fixed assets) which you are actually using for your business, you can claim the related depreciation expense every year throughout the estimated useful life/years of such fixed asset items you are using for your business. Practically, you can claim any expense as deductible from your taxable income as long as they are related (directly and indirectly) to your business activities.

    It is best to consult an Accountant to prepare your initial income tax return and learn as much from him/her in your initial preparation. And then if you want to save and prepare it by yourself later, you have an idea how to do it. However, if you have any doubts on other new stuff again, it is best and safe to consult an Accountant before you file your income tax return. Another option is for you to prepare your income tax return by yourself and have it reviewed by your Accountant before filing it.
  5. Judi and Mark

    Judi and Mark New Member

    Hey 14Catz,

    I'm sure by now you know all this but I'll answer your questions anyway and then say my two cents. You can register a sole proprietorship with your SS number so your really don't need a separate E.I.N. You don't have pay yourself a salary and may withdraw money anytime you see fit. It is solely your business with no one but you to answer to. You are also able to write-off any legitimate business expense occurring under the operation of your business.

    Besides all the great tax savings ideas for owning and operating an At Home Based Business, the entrepreneur should carefully consider how his/her business should be organized in the eyes of the federal and state government from which the business is located.

    This is super-important in terms of further tax savings, but especially from a liability standpoint. You certainly don't want the have your butt on the line in case, God forbid, someone should sue you.

    With a sole proprietorship you are personally responsible for everything you are involved with. Pretty much the same with partnerships: i.e. generally personally responsible up to the percent of ownership. Limited liability partnerships lend much more personal protection but case history shows some cracks that can be taken advantage of.

    Forming as a corporation, (C-Corp or S-Corp), which pretty much takes any personal liability out of the picture. But my favorite entity formation is the LLC. They are easy to form and register, basically for free if done online, great tax advantages, (gives you a choice to be taxed as a corporation our as a flow through to your personal tax return, of course after taking all the great write-offs. And the liability protection is about as bullet-proof as a full blown corporation.

    Please be aware that I am not an attorney or a CPA so this is just ideas that should be thoroughly discussed with your own attorney and/or account.

    Thoughts to consider!

    To Your Health and Wealth,

    Judi and Mark
  6. charile

    charile New Member

    are you in need of legal service i know of one that can help you it is really works if you want more infor please let me know.
  7. moneyathome

    moneyathome New Member

    Having your own business has many tax benefits. You can pretty much write of EVERYTHING! Charity donations, house repairs, milage that you drive with your car, Internet monthy bills, phone bill, electricity, gas, rent, property taxes, etx. Get a great tax person that know about ALL of the home business tax deductions! I have one and she got me a refund last year, even though I own my own business. It's great!
  8. talfighel

    talfighel Silver Member

    The best advice I can give you is to check with your local laws on what you need to do in order to open and operate a business.

    Consult with a lawyer or your accountant to see what you must do in order to comply with your state or city laws.
  9. AllenMass

    AllenMass New Member

    Good business advice. The official definition of a penny stock is a low-priced, speculative security of a very small company, regardless of market capitalization.

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