You have made the decision to be your own boss. But now what? It's important to get started right. The first thought should be towards what type of business do you want to be. Important disclaimer here, the following information should in no way be considered legal tax advice, its recommended to advise a tax professional where possible. That being said there are different options for the type of business to set up and how to go about getting a business entity. I'ts also important to note there are many ways you can go about setting up the business. Below are some insights that can help you.
First its important to understand what different business entities are most common for small business owners to set up. Those primarily will be setting up either a sole proprietorship or an LLC. There are other business entity options available but these are most commonly recommended by tax professionals.
A sole proprietorship is a business that legally has no separate existence from its owner, better still it is the simplest business form under which one can operate a business. A quick distinction to make a sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts. Bottom line it is a quick way to set up a business but the risk for loss and finances falls solely on the person creating the sole proprietorship. Many tax professionals have stated its an easy way to get started until the business takes on certain levels of success.
Limited Liability Company or LLC
On the other hand there is the option of a limited liability company. Legal Zoom gives a great definition of the differences between an LLC and a sole proprietorship:
"Limited liability means that its owners, also called members, are usually not personally responsible for the LLC’s debts and lawsuits. If an LLC files for bankruptcy, the members do not have to use personal money to pay the company’s debts. If the LLC faces a lawsuit, the members do not risk losing their home to cover a settlement.
In the eyes of the IRS, however, LLC taxes usually resemble a sole proprietorship or partnership. The LLC does not pay income taxes itself; instead, the owners list business profits and losses on their personal tax returns. The LLC can choose to tax itself as a corporation. To do so, it must follow corporation tax law and filing requirements.
LLC owners must file formal documents with their state, pay a filing fee and comply with other regulations before hanging out the shingle. In some states, LLCs have to pay an additional franchise tax. Partnerships and sole proprietors don’t face the same level of paperwork and fees. Unlike a corporation, an LLC does not issue stock and is not required to hold annual meetings or keep written meeting minutes." To read up more on LLC's feel free to read the entire article : https://www.legalzoom.com/articles/what-is-a-limited-liability-company-llc
Bottom line most professional tax people will say setting up an LLC is the best way to go especially considering the information above. Consider that as an LLC most any thing you do, or spend money on that relates to the business, can be written off on your taxes. Its also possible to set up credit lines under the business that can allow you the ability to have funding for your business that you won't have to be personally liable for. Its important to know all the benefits and to set up the business right away.
Ways To Set Up Business Entity
The safest option to set up a business would be to use a CPA or other tax professional. Most any account or CPA can help set up a business for you. It will probably the most expensive route as you are paying for the service of a professional to set up your account. Along with setting up an LLC often you will want to to get a federal Tax ID number often called an EIN. Your tax person can help you set that up as well.
Another option is to use an online professional agency such as www.legalzoom.com. This company is a self help website run by tax professionals. There are plenty of documents and forms and paperwork that you can pay for and create your legal entity directly through them. This service ends up being a reliable and often less expensive option to get your business set up.
A final option will be to set things up all by yourself. A few simple google searches will put you in the right direction to set things up yourself. To apply for an EIN number just google search "Apply for ein online" or click on this link: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
To set up the business in your state, one easy way to do that would be to google search " Setting up a business in (insert your state here)" . When the results pop up be sure to choose the option that pops up showing your official state website. Then follow the steps within that website.
Be sure to get your business entity started off right, and find the correct option that will fit best for your business. If you would want help or more information on how to grow your business be sure sure to contact Alpine digital consulting for more information.