Taking the Small Business Plunge | Day 4

So maybe you have a pretty good idea of what you want your business to look like and how you want it to operate. But the whole legal thing really kind of paralyzes you. I get it. It’s scary and as soon as you make it official you’re like…really in business. And there’s a lot of pressure and commitment that comes with that.

I want to write a little bit about how to start doing some research about registering your business with the state and IRS. The reality is, you just have to. It’s the most responsible thing to do and it legitimizes your business. I want to make it clear that I am in no way a financial expert and highly recommend you talk to a local accountant or financial advisor that you trust to help you make these decisions. I am speaking only from personal experience and this information is just what has helped me sort some of this stuff out.

Now with that said…here’s the dirt.

There are several ways to legally structure your business. This decision is based on who is operating/owning the business (just you or you and someone else), how you want to file taxes, and the liability you are taking on.

Some of the most common small business structures include a Partnership. Sole Proprietor, Limited Liability Company (LLC), and a S-Corp. The Small Business Association (SBA) has really good info about the specificsof each one of these.

Personally, I have registered as an LLC. I chose this mainly because it prevents our personal assets in a situation of bankruptcy, debt, or legal issues. Also, the way you do finances and taxes is less strict. I file taxes for my business through our personal taxes as income. There are fewer rules about how I take income from my business – essentially all of it is personal income so I can do with it what I want (pay bills, retail therapy at Target, or reinvest in the business.) I pay quarterly taxes based on what I made and what services I taxed. My accountant helps me file those and I strongly advise you find someone you trust to work with you on that too.

Now a note on taxes…

When you start a business, you have to figure out the tax laws for your particular state and your particular business. There are certain goods and services you tax and some that you don’t. The guidelines are very specific and can be found on your state’s website. Make sure you read over them, understand them, and ask the questions you need to in order to be sure you are taxing your clients correctly.

Are you still with me? Great.

One last thing you want to consider while registering is something called a “DBA” or Doing Business As. Basically, when you register online you will be asked to fill in a DBA if you are operating as any other name besides your own legal one. This is especially important if you are operating as a Sole Proprietor but this is another important thing to ask your financial advisor or accountant about. 

The Small Business Assosication has some really good resources that explain these things in plain language. If you have any questions about my personal experience, feel free to ask! Next up…EIN numbers. I know, it’s getting super exciting around here. But hey, if we want to be in business, this is just part of the deal folks. Stay tuned!