The Legalities Connected to Operating a Home Business
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Websites that can provide you with resources necessary to get you off to a good start:
Small Business Administration
http://www.sba.gov
Small Business Start-up Kit
http://www.sba.gov/
starting_business/
startup/guide.html
Your Local SBA Office
http://www.sba.gov/
regions/states.html
Before you start a home business you need to acquaint yourself with all of the laws governing conducting business out of your home. This involves registering a business name, obtaining a business license, and figuring out how much you will owe in various taxes including income tax, estimated tax, self-employment tax and state sales tax. You also need to find out about your city’s zoning laws.
You have decided to start a home business. You have created a website, business cards, and letterhead, and your products are ready to go as soon as you have customers.
Before you go any further, you must make sure that the legality side of your home business is in order. Here are listed some general guidelines, but it is important to remember that no two businesses are the same, and not everyone enters into a business with the same level of business acumen. It would not be a bad idea to consult with a lawyer and accountant before you forge your way into unknown territory.
Registering a Business Name
If you plan to run your home business under a name that is different than your legal name, then you will have to register your name so customers will know that you are doing business as (DBA) under a made up name or pseudonym. The requirements for registering a business name vary from place to place, so it is best to check with your county clerk or state office for the correct information.
Business License
The licensing of your business is contingent on the kind of business you plan to have. Licensing takes place on a state and/or regional level. Federal licensing is not necessary unless you plan to deal in controlled substances, such as alcohol, tobacco or guns. The city clerk’s office should be able to provide you with the information you need. Some cities make it a necessity for all small business owners to have a general business license, while others do not. Find out before you move ahead.
Income Tax
Once you start a home business, your taxes will become a great deal more complicated, as now you have to file your personal income tax return, as well as another one for your business. If you start a sole proprietorship, which is what most home businesses start out as, you will need to pay income tax based on your net profits. You will need to fill out Form 1040, as well as Schedule C or Schedule C-EZ: Profit or Loss From Business.
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For the information you need, go to http://www.irs.ustreas.gov and download a copy of the IRS Publication 334 (Tax Guide for Small Business). All of the forms you need to file your income tax return are also available on the website |
Estimated Tax
If you estimate that your yearly federal tax will be in excess of $1,000, then you are required to make estimated payments on a quarterly basis. While this may seem like a hassle, making payments four times a year helps you to avoid having to pay a large lump sum when tax time rolls around. You need to pick up a copy of the IRS Publication 505: Estimated Tax Payments in order to learn more.
Self-Employment Tax
If you run a home business or any type of small business, you need to pay into social security and Medicare in order to reap the benefits. Remember you no longer have an employer who looks after these things for you. If your business earned you more than $400 in a calendar year, then you need to fill out Schedule SE.
State Sales Tax
You will be paying state sales tax if you sell goods and/or services. Get in touch with your state treasury office to find out what you need to do in order to get a sales tax certificate. If you are planning to sell your goods wholesale or are going to buy your materials wholesale, then you will need to obtain a resale certificate so you will not end up paying taxes twice for the same items.
Zoning
Zoning bylaws are very important, whether you live in a big city or small town. Check into the zoning regulations for starting a home business before you set up shop. You do not want to waste time, money and resources on your business only to discover later on that you are in violation of a zoning law.
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Disclaimer: Ideawala.com does not recommend or endorse the products or services mentioned by the authors. We have not verified authors' credentials. We do not guarantee the accuracy of the information in the article or the earnings claims. Nothing in this article should be construed as business, legal or tax advice. Please consult a professional business advisor, an attorney or an account for specific advice in your situation.
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