Do these five things to get your business set up.
- Decide what type of business you are going to be. If you are a solo creative entrepreneur, you can choose between being a sole proprietor and filing your taxes on your personal tax return with a Schedule C. If you have one or more partners, you can’t be a solo proprietor, but you can choose to be a partnership and file partnership returns. The last option for either individuals or partnerships are to file paperwork with your state to become a LLC or corporation. A quick google search will get you to the correct website for your state.
I strongly suggest you consult a trusted attorney or an accountant to get advice on how each of these will affect your taxes and personal liability.
- Speaking of liability, you will want to look into insurance to protect you, your family and your business. Depending on what you are selling online the cost and type of insurance will vary. An attorney or reputable insurance agent will be able to guide you. You may only need liability insurance but if you have employees you will also need workers compensation insurance.
- If you have employees, incorporated or are a LLC, you need to file with the IRS to get an employer ID number. This is a simple process which you should be able to do on your own. Make sure you are in the IRS.gov website and not another site. When I searched, the IRS site was not the first site to show up. Be careful who you give your social security number to. If you have an attorney or accountant, they can do it as well. You will need to have made a decision about your legal entity first (individual, partnership, LLC, Incorporation) before you do this.
Make sure you review the fees charged for deposits, checks and monthly balances charged when you are looking for a bank or credit union.
- Setup a separate bank account for your business. It doesn’t matter if you are doing this as a side project or full-time. You need to keep your personal expenses separate from your business expenses. Likewise, you need to deposit all cash into this account. It will make your life so much easier if you can look at the balance in this one account and can ballpark if you are making money or not. If there is money left in your account after you pay your business bills, you are making a profit.
Make sure you review the fees charged for deposits, checks and monthly balances charged when you are looking for a bank or credit union.
- Setup a savings account for income taxes. Yes, I went there. You are running a business. If you run it well, you will have profit. If you don’t, then lets work on that as well.
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- A rule of thumb I heard Dave Ramsey state is 25% of your profits (if you are filing as an individual) should be saved. This will cover your self-employment and federal income taxes. If you live in a state with income tax, you will need to save for that as well. If you are making a ton of profits, this percentage will go up!
- The federal government and most states expect you to make quarterly estimated income tax payments. If you don’t, they will apply a penalty and interest to the underpayment and it adds up fast. An attorney or accountant can help you figure out exactly what you need to pay and when. My advice is to not mess with the IRS.
Five really important things you need to do. And yes, you can get them done in one day, I did.
You should first get advice from a trusted attorney or accountant. Most have an hourly rate and it should not take more than an hour or two of their time. I know it is an investment, but it will save you money and aggravation in the future.
