Thinking of starting a new business? Congrats and thank you!! Small businesses are what keep our country running. I thought I’d post a few things to think about if you are starting a new business. Of course, this isn’t an exhaustive list, and I’d encourage you to take the time to speak with a lawyer and a good CPA to make sure that all your ducks are in a row. The expertise is worth the cost.
Having said that, here are a few things to think about:
- What type of business will it be? There are all sorts of types of businesses — the most common is the sole proprietorship. This is by far the easiest and simplest business structure. When I used to tutor, I was considered a sole proprietorship. I reported my income and expenses on Schedule C of my 1040. There are other types of businesses as well — partnerships, S-corporations, LLCs, among others. One of the positives about an LLC (which stands for Limited Liability Company) is that the owner(s) will have limited personal liability for the business debts. This type of business needs to be formally set up, usually through a lawyer’s office. In any case, if you decide to meet with a lawyer or a CPA, this will probably be one of the things they discuss with you.
- What types of taxes will I be responsible for? The type of business structure that you choose will also determine what types of taxes you pay and how you will pay them. The four general types of business taxes are income tax, self-employment tax, payroll taxes, and excise taxes. If you decide to have an employee as a part of your business (side note: it is not your decision on whether or not someone who works for you is an employee or a subcontractor, they either are or they aren’t), then I would recommend you have a bookkeeping program like QuickBooks and sign up for their payroll subscription. It is a very cost effective way to do a small payroll.
- Employer Identification Numbers: Typically, a new business will need a Federal Employer Identification Number (FEIN or sometimes just EIN). You can go to irs.gov and see if you need to get one for your business.
- Recordkeeping: No matter what type of business you set up, you need to keep track of what comes in and what goes out. This may be as simple as a spreadsheet (that’s what I used for my tutoring), or you may want to get software like QuickBooks. Good recordkeeping also includes keeping the support documents for your numbers, like receipts and invoices. Also, just from an accounting standpoint, it is almost impossible to run a business well if you don’t know how much money is coming in and where the money goes as it goes out the door.
I hope this gives you some things to think about. Take a look at IRS Publication 583 (Starting a Business and Keeping Records) and Publication 334 (Tax Guide for Small Business) for some more fun reading.
