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l4catz
Member
Joined: 15 Nov 2006
Posts: 1
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# Posted: 15 Nov 2006 15:22
Reply
Hello everyone,
I am about to "officially" start a small business (sole proprietorship). I have been selling my products for several monthes and since I seem to be doing okay with it, I decided to make it official. I will be claiming all of the money that I have received so far as income and I will pay whatever taxes I have to. I want to do things the right way because I was audited last year. NOT FUN!
I am sure that my "friends" at the IRS will being watching this year too and I want to get it right. I am going Monday to register my business name. Then, I guess I need to get a Tax ID number from the comptrollers office.
Do I need to get a Federal ID number if I don't have any employees? Can anyone tell me what else I need?
As a sole proprietorship do I have to pay myself a salary or do I just pay a percentage of the businesses yearly earnings into medicare and SSA? Can I write myself checks for cash out of the businesses earnings since it is all included in my personal income anyway or do I have to have a legitimate expense...gas receipts, supplies or whatever to be reimbursed for.
Also do you know if I can claim deductions for business related items (computer, camera, supplies, etc) that I bought this year but before the business was "official"?
Thanks for the help
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wealthymarket
Member
Joined: 15 Jan 2008
Posts: 59
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# Posted: 20 Jan 2008 05:02
Reply
If it is just a sole proprietorship, you can technically just use your SSN, but it can get really tricky. I recommend simply filing for an EIN (that's a business tax id) over the phone. Just go to the IRS website, look up EIN, and call the phone number. You can be set up for one in about 8 minutes.  Piece of cake, and that way you will be able to keep that income separate from your SSN, making everything easier to report for taxes accordingly. 
I'd also recommend, if you don't already, having a separate bank account...and making an LLC or something of the sort. LLC's will cost a filing fee (which varies greatly by state), but--again--if you're concerned with filing taxes properly...especially if you're under scrutiny...then you may want to have the LLC. Just keeps everything cleaner and easier to report. That way they don't try to whack you on anything...they're not exactly the most honest people, either. So, if you're so spotlessly clean that they can't mess you over at all, then you're all on the up and up. :-D Hope that helps!
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dmitch31
Member
Joined: 18 Jan 2008
Posts: 210
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# Posted: 7 Feb 2008 23:53 � Edited by: dmitch31
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If you are a sole proprietorship, then as far as the IRS is concerned, YOU ARE the business. Your finances and your business finances are one in the same. Now, that's not to say that you might not have a separate bank account for your business, but the business' income is YOUR income, and the business' expenses are YOUR expenses.
You don't have to write yourself a check or pay yourself, or anything like that. The net profit from your business is your net income and you pay taxes on it just like any other income. Check the IRS documentation to see about paying your own taxes on either a quarterly or monthly basis. If you wait until the end of the year, you'll incur a penalty.
An LLC (Limited Liability Company) doesn't change your financial position either. You and the business are still one and the same financially, however, it can serve to limit your losses should you be sued for something business related. You do not have to form an LLC to keep your personal and business finances separate, however. I wouldn't get hung up on the LLC thing. Talk to your accountant and get advice from him/her on whether or not that may be helpful.
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