Setting up your business correctly is why how to start a business at home will change your life. People of all ages are starting a business at home to earn an income. Why not you too? There are only a few simple steps to follow to get your business up and running in a very short period of time.
Making Your Business Legitimate
The most crucial step in starting a business at home is in making your business legitimate in the eyes of the IRS. If not set up correctly, the IRS can make your life miserable. It can end up costing much more than any profit you make.
Follow these steps to ensure you have all the proper documents that will make your business legal.
- Contact your Secretary of State and open an account. Every state is a little different and each state has specific instructions on how to get a business started. (I live in Louisiana and I went to Louisiana Secretary of State website. On the website there is a link to GeauxBiz where I created an account to get the checklist to start a business).
- There is a list of all business names that you will want to research so that you choose a business name that is not already in use.
- The next step is getting a Tax ID certificate from your State Revenue Office. This certificate allows your business to purchase goods at wholesale and sell at retail. If your business is for services only, you will need this certificate to charge taxes on consumers of your services. (This certificate also gives your business the authority to deduct business expenses from the yearly operating cost).
- After you create a business name with the Secretary of State and have your tax certificate, you will then go to the city where your business will be located and file documents and get a license. This normally costs about $50 a year for this license.
You have filed all the documents required by your state you are now considered a business in your state. This opens the door to all the opportunities that every business is entitled to under the law.
Most cities forbid a commercial service business like auto repair to operate in a residential neighborhood. This is because of noise and the number of cars around the property is an eyesore to the neighbors.
If your business is an online business, the approval rate is 100% from cities and states. Some states now charge taxes for online purchases so make sure you are operating your business under the law.
Sole Proprietor Or Corporation
There are six different types of businesses. Each one has its own advantage and disadvantage and the tax liabilities are different for each type as well. Understanding these advantages and disadvantages of each business type is imperative; since the right business organization is based on individual circumstances. The LawTeacher.net has a great explanation of how the tax liabilities of each different type of business is applied and handled.
The six types of businesses that you can start are:
- Sole Proprietorship – is owned and operated by one individual
- General Partnership – two or more partners as business co-owners.
- Limited Partnership – is a partnership formed by two or more people having at least one general partner and one limited partner.
- “C” Corporation – This type of corporation has the greatest amount of startup costs but for a highly profitable business, this is the best option.
- “S” Corporation – Very similar to a “C” Corporation in that you receive the limited liability of a corporate shareholder with the benefit of paying taxes as a sole proprietor or partner.
- Limited Liability Corporation or LLC – This acts as a hybrid between the partnership and corporation.
Each type of business must be carefully researched to find which one is best for your particular circumstances. For a business that operates only online, like making sales or as an affiliate, a sole proprietorship is fine and customary.
The sole proprietorship business model is actually the most common because a home-based business is usually being operated by one individual. It also requires the least amount of startup costs.
Since the sole proprietor will be taxed at the individual’s tax rate and on the profits generated from the business anyway, there is no need for the added expense of incorporating the business. Usually when the business first starts there isn’t a lot of money in the budget so profits are small.
As the profits rise in the company or the owner is acquiring equipment, property, or lots of money, changing the company from a sole proprietorship to an LLC will be a smart decision to make.
I don’t like partnerships of any kind because of the liabilities that one partner can pass onto the other. One partner that has a gambling problem, for example, can bankrupt the other partner.
Of the three corporations available I prefer the LLC or Limited Liability Corporation. Until the business has a lot of capital, or equipment or property, forming a corporation involves more legal documents and IRS oversight, and not advantageous for most home businesses.
Legal Documents You Must Create
There are certain monthly documents you should complete and maintain for your records. If you ever get in a pinch and the IRS comes knocking, not having these few documents can put your business into an extremely vulnerable position.
I use a Spreadsheet for my sole proprietorship business. I include all of my expenses and sales. All profits and expenses will be easily seen. I use this same spreadsheet to give to my tax consultant and adviser for filing my 1040 tax form.
My business in Internet sales so there is no need for a monthly mileage report or traveling expenses.
I am on a monthly plan of paying taxes to the State from my business. Every month the State mails a form that I complete and submit. Failure on my part to submit form invokes harsh penalties from my State about taxes owed to the State.
Every business has them, there is no way around it. The great thing about business tax is that the expenses can be deducted from your profits before taxes are figured. In a year that has low to no profit, these expenses are real and can still be deducted from the yearly total. The IRS simply requires a business to report all profit or loss and requires a business to show a profit in the two out of five years.
This is what makes having a home-based business so appealing. Since a brick and mortar business can deduct ALL their expenses – so too can the home-based business deduct expenses. Expenses like Utilities, Rent or Mortgage interest, insurance, repairs to your home, office equipment, office supplies, stamps, furniture, and the list goes on.
If my business uses a mailbox at the post office then mileage to and from post office plus the yearly rental of mailbox would also be deductible.
By learning the proper procedure to start a home business will make earning an income working at home easy, which will change your life for the better. People are struggling to make ends meet. This is mostly self-inflicted due to never learning how to handle money.
Sometimes, however, it is not so much about self-discipline but rather on earning low wages, to begin with. This makes it much harder to provide for a family. So having a home-based business is much more important and necessary. You can literally work two jobs, one from home part-time and your other regular job.
Once your work from home business is earning a nice income, you then have options. You can quit your day job to become your own boss or use your business to supplement your income. Either way is good. Whatever your circumstances dictate is your best approach.
But at least now you have options. Before you started your home business, you had no options.
I hope that you found this article to your liking with information that you can use. If you need assistance at getting started with starting a home business please complete the contact form and I will answer you as quickly as I can.
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