- Zoning requirements and acquisition
- Because my home is zoned for residential only use, I had to get a permit, an inspection, and a zoning variance to operate my business out of my home.
- The zoning laws in our township are very strict and many times, home-owner associations (HOA’s) have stricter regulations than the townships and municipalities (They WILL rat you out!).
- The township looked at where in my home my office would be located, whether my customers had a clear path to my office, parking, snow removal, electrical requirements, signage, and many other requirements.
- Because you may have an internet-only business NOW, it may change so it is better to KNOW these regulations and plan for them NOW. Governments don’t like it when you ask forgiveness rather than permission.
- Licensing requirements and acquisition
- Most municipalities require some sort of BUSINESS LICENSE.
- Even an internet business is required to have a business license
- Professional Certification
- Proof of certification may be required with certain professions. For instance, if you are a doctor doing Web-Medicine (remote diagnosis), you may need to provide proof of your license to practice medicine.
Business Organization and Tax planning
- Business organization requirements and registration
- Will your business be a Sole Proprietorship? Partnership? LLC? Corporation?
- Creating anything beyond a Sole Proprietorship has many regulations for creation of those business entities
- Legal liabilities associated with each entity type
- There are many reasons to form each entity type. Consult professionals, both legal and accounting, to be sure your business organization is the best choice for your business
- Many people go to the expense of forming an LLC, but if there is only one principal in the LLC, it is treated as a sole proprietorship, which negates any legal and liability protections in most states.
- Business reporting requirements
- Every business has filing and reporting requirements to local, state, and federal authorities.
- If your business is a corporation, you may have certain reports required quarterly and/or annually
- If your business deals in stocks or securities, you may have Securities and Exchange Commission (SEC) filing requirements.
- If your business operates in foreign countries, you may be subject to not only US laws, but foreign and international commerce regulations.
- DBA or Fictitious Name registration
- You may be required to file for a Ficticious Name or Doing Business As (DBA) filing.
- For instance, I had to file a DBA for my consulting firm, Richard Moyer DBA Spaho Consulting, LLC
- FEIN or Social Security registration
- A sole proprietorship can file a 1040 Schedule C under the Social Security number of the business owner.
- A partnership can file individually under the Social Security numbers for each of the partners, but they must file a Schedule K and other tax documents
- Other business types must file as a separate entity, which requires a FEIN (Federal Employer Identification Number). This may be required whether your business has employees or not)
- Business filing requirements
- Corporations are created and managed by the individual state in which the Articles of Corporation are created. Each state may have different reporting and filing requirements.
- Nevada and Delaware corporations are very popular due to the easy and inexpensive corporate creation and reporting requirements
- What people don’t realize is that if you have a business presence in other states, you must also file for a Foreign Corporation in some of those states.
- People don’t realize that corporations are fairly easy to create, they are extremely difficult to dissolve.
- When I formed my LLC, I looked into a Nevada or Delaware corporation but because I live in Pennsylvania and was doing business in Pennsylvania, I would have to file for a foreign corporation, which was twice the expense and reporting requirements.
- Accounting method and tools
- For a sole proprietorship, your accounting tools may be as simple as a spreadsheet, or you can use any accounting package to help you organize, record, and report on your accounts.
- Save all of your receipts
- I strongly recommend consulting an accountant and tax professional
- Federal/State/Local tax filing requirements
- Yes, you must file taxes. You must declare your business income and expenses.
- As a business owner, you pay a Self Employment Tax which is the equivalent of DOUBLE the Social Security tax.
- People get so excited about RESIDUAL INCOME – HERE is where it matters.
- Regular sales commissions and earnings are treated as REGULAR INCOME, whereas Residual Income is taxed at a LOWER TAX RATE. This only matters if you FILE YOUR BUSINESS TAXES and maintain the appropriate DOCUMENTATION.
- States and local municipalities ALSO require that you declare your income and pay taxes.
- Safe Harbor funding and reporting
- You may be required to pay your estimated Federal, State., and Local taxes QUARTERLY if your withholdings from the previous year income do not meet the Safe Harbor regulations (typically 90% of the estimated taxes due are withheld or paid as quarterly estimated tax)
- Sales Tax reporting and filing
- Most people believe that sales or use tax is not levied for transactions on the internet, WRONG! Check with your state department of revenue.
- For example, I live in Pennsylvania. If I make a sale, and the customer also lives in Pennsylvania or the ship-to address is in PA, I must charge state sales tax (6%). If that customer is in a tax jurisdiction like Allegheny County near Pittsburgh or Philadelphia County, I must charge the prevailing tax rate for that tax jurisdiction (7% and 8% respectively). Businesses are required to file and pay state sales tax either quarterly or semi-annually
- Home Office or rent/lease
- Your workplace must comply with Federal (OSHA, EPA), State, and Local (building code, zoning) workplace regulations
- If you rent or lease the building, you have a legal obligation to obey any contractual requirements
- Your purchase or lease of your home for dedicated office space in your home may not be deductible, but if properly segmented and documented, certain utilities and other expenses may be deductible
- Comprehensive and liability insurance
- Minimally, you should have Comprehensive (fire, theft, flood, natural disaster) insurance
- You should consider an Umbrella Liability policy in case you are sued
- Equipment, furniture
- You should account for any special equipment or office furniture. These items are typically capitalized and those expenses amortized over a period of years
- Computers, printers
- Computers, network infrastructure, printers may be deductible if dedicated to your business.
- Office supplies
- These are considered normal deductible business expenses
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