Small Business Taxes, Licenses and Legal Issues

I want to preface this post by saying that I am not a tax expert. If you need help with your business taxes, I would suggest hiring an accountant or professional. I am going to do an overview in this post to help give you an idea of how to get started with some of the legalities you’ll face having a small business. It’s always a great idea to do your own research on the IRS.gov website and through your local city and state laws.

Sole Proprietor or LLC

If you haven’t already, decide if you are going to register your business name or conduct your business under your personal name. You can still have a business name and run your business under your own name legally. Most small businesses are started out as sole proprietorships or partnerships because there isn’t as much paperwork involved. I would suggest to start your business off like this, but really consider setting it up as a corporation down the road. 

If you’re going to conduct your business under your name, then you are considered a sole proprietor. A sole proprietor is simply someone who owns an unincorporated business without anyone else involved. You can select to turn your sole proprietor business into a limited liability company or LLC and treat it like a corporation if you wish. An LLC may be a smart idea for you because what it essentially does is that it separates your business affairs from your personal ones so that in case you were to ever be sued then only your business assets would be affected and you wouldn’t lose your personal ones. You can file for an LLC through your state. 

Small Business Taxes

Taxes don’t have to be a nightmare.

I’ve seen many people start a business only to give up the following year when taxes are a nightmare. If you’re going to run a successful business, it’s a good idea to get ahead of the frustration and to start working on your taxes right away. 

There are a lot of forms on the IRS.gov website that you will need to familiarize yourself with when you become a sole proprietor. The 1040 Schedule SE self-employment tax and the Schedule C form are two of the most well-known documents. Self-employed individuals are responsible for not only filing an annual return but also paying their estimated taxes quarterly.

The SE tax is the social security and medicare tax that you’ll have to pay yourself that are usually withheld from a normal paycheck in the workforce. Applying for an Employer Identification Number or EIN is also something you should do while you’re on the IRS website. This number helps to identify your business and it is provided free of charge. You can use an EIN on many websites when purchasing products in large quantities so it’s a good idea to have one.

Local Taxes

Not only do you have to take care of your business through the Internal Revenue Service, but you’ll also need to set your business up through your state. All states have different requirements for starting a business so it’s important that you view your state’s website to find out more information. There may be licenses and permits that you’ll need to buy, and there could be separate taxes you’ll need to collect or pay. 

If you contact your local government, there are generally resources available out there to you for free to help you with starting a business. A great place to start online is the U.S. Small Business Administration or SBA. They specialize in helping small business owners and entreprenuers get their businesses off the ground. Visit sba.gov for more information. 

Online Business

Lastly, if you are setting up a website for your crafting business you’ll want to look at all the legal aspects of it. Most website are required to have a privacy policy which is a legal statement that tells customers what the business does with personal data this is collected when they make purchases. You may also be responsible for collecting the proper sales tax from each state, as well as following all website regulations. 

The bottom line is that this is the part of setting up a business that no one likes, but in the end you will be grateful that you took the time to do things right. You could end up with serious consequences down the road if you don’t adhere to doing things by the book. Take the time to do the research and to consult professionals. In a future post, I’ll discuss why it’s important to have a business bank account and how to keep track of your business expenses through bookkeeping.