Friday, February 18, 2011
BUSINESS LICENSE & TAXES
I have had a few readers who have asked me to write a tutorial on the benefits of having a Business License and taxes.
****I am not a CPA or an Accountant. Any tax or legal advice that I share here are from my own experiences doing business and dealing with these issues. You should ALWAYS consult a CPA or an Accountant for taxes and other business licenses advice. I hold no legal responsibilities.****
You should research your City, Town, and State Business License tax info on the IRS website or go to the chamber of commerce. Some states you can even file for a business license online. Go to your state website, usually there is a link there for the IRS department in your state.
Getting a Business License usually only costs anywhere from $18 to $50 (depending on the state) to file (it might be a little bit more now, since I have filed a few years ago). But you have so much more tax benefits, which means that you will get more money back on your income tax returns.
Having a business license means that EVERYTHING that you buy, spend, cost you, and use on your business is a tax write-off.
Here is a small list of what you purchase that can be written off on your taxes as a business expense:
Part of your home rent/mortgage (because you are using your home as a studio or an office)
Craft fair cost/fees/expense
Your internet bill
Employees salary (if you have employees)
...you should have a trusted CPA (accountant) to talk to and consult you more on this matter.
***Also, if your business do not make any money or if you break even, then you do not owe any taxes, you most likely will get money back at the end of the year.
An easy way to keep your business expenses organized is to have a separate Bank Account dedicated just for your all of your business expenses and use. And you should have a credit card or a bank card that is to be used ONLY for business expenses and use. This way, you can just go online, and see all of your expenses in one place. This makes tax time a whole lot easier and less stressful. Having your business expenses separated from your personal expenses means that you save a lot of time when tax time comes around. You do not have to dig through and sort out your business expenses from your personal expenses.
The BEST way of getting a license is to contact your CPA/ Accountant. They can do all of the paperwork for you...all of you have to do is Sign! Isn't that awesome. Now, for all of you "do-it-self" girls out there, you can go to the IRS department building in your state/city (look it up on google by typing in your state, city, and the "IRS department building"), and pay for the license and fill out the forms there. However, I absolutely advice that you get a CPA/Accountant to do the paperwork for you. Either way, you are going to have to tell your CPA/Accountant because they have to know to do your taxes at the end of the year. Now, Your CPA/Accountant may or may not charge you a fee for the paperwork filing.
Just between you and me: My CPA did NOT charge me for the paperwork filing. It was a 1 page form that he electronically filled out for me. And all I had to do was sign on the dotted line.
Oh, another business tip: Make sure you know how to file your business license.
What??? there are more than one way to file????
Yes, there is!
Okay, here is a quick Summary...
choice 1: File as a sole proprietorship (owner, doing business as yourself).
Filing as a Partnership is the same as a sole proprietorship (except with more than 1 owner).
Choice 2: File as an LLC (Limited Liability Company)
Choice 3: File as a S Corporation or a Corporation
I am sure there are other ways as well, but these are the 3 most popular ways that people file for businesses.
Pros and Cons for Each type:
sole proprietorship: YOU are liable for EVERYTHING. So I don't really recommend this. But it is the easiest form of business filing. Filing as a Partnership is the same thing. Except there are more than 1 owners to go after if something goes wrong. Lawyers loves this, because there are more assets involved. yikes! Plus, if things don't work out, you have to sever the business partnership by dividing business liabilities and assets that are involved. This can get very very tricky if you have a lot of business assets and liabilities.
Filing as an LLC (Limited Liability Company): This is my FAVORITE. You get so much more protection for your personal and professional assets. **I will explain more indepth in a different thread since this can get very very long). However, it will require a little bit of money. It costs about $250 to file for an LLC. you can do it on Legal Zoom for about $70. I don't recommend doing it on Legal Zoom because they DO NOT do everything for you. Okay, here is how the LLC process works: You have to reserve your LLC name (cost money). Then after that you fill out a form. Mail the form. After your LLC has been accepted, you then have to declare your existence by publishing ads in a few State/Local, and National Trade Publications (newspapers/magazines)....I know, this can get confusing! Pay the ads fees to the media publications. (Fees varies per publications). This is why I recommend finding someone to do it for you. Hint: your CPA can do all of this for you! After a few weeks (usually 3 weeks), your LLC is official!
Filing as an S-Corporation or a Corporation:
Great protection for your personal and business assets. But it does require a lot more work than an LLC. You are required to declare tax filings per quarter/semi annual/ect...(Talk to your CPA for more detail). Unless you have more than 50 employees, this is not really recommended for small home base businesses like ours.
***If I am incorrect on any of the above topics, please let me know and correct me***
****All of the info here-in are based on my own personal experience doing business and what I have heard from my CPA and other business individuals. Before you do anything, you must consult with your CPA/Accountant for YOUR specific business needs. I take no responsibility for these information.****