Forming a business - where to start?

amother

Sun, Jan 26 2014, 10:40 am

For a number of years I've provided services as an individual, paying my work expenses out of the same account as household budget, billing and filing taxes and everything under my own name...

I think it's time to move on. B"H I have been expanding to include more clients, and have also had more expenses, and it's just getting complicated. I also wonder if there would be tax-related benefits to incorporating. Plus, maybe my business would just sound less "heimish" and more professional if it had a formal name instead of just using mine.

Due to other recent expenses, I'd rather not hire a lawyer right now, but if it's really a big deal and highly advisable to use a lawyer I'd like to hear that from people who have BTDT.

Until then, here are the main things I need "for-dummies" help with:

1. What are the advantages/disadvantages to formally becoming a business? Do I have anything to lose by this? What would I gain? Note: I am very much an individual at this point, no employees or investors, just me doing my work.

2. Having a hard time understanding the differences between types of businesses - LLC, S-corp, others? How do you figure out what you are or should be?

3. How to register a business name in NY - I tried figuring this out online and kept going around in circles. It SOUNDS so straightforward until you try to do it. I figured I can probably start with a name even before figuring out the rest, but can't find what paper to fill out and where to send it. I read that you have to file with the county clerk, which could be done online, but then the county clerk website is all about marriage-related stuff...

TwinsMommy

Sun, Jan 26 2014, 11:15 am

by filing taxes under your own name---- do you mean you had your business as a sch C and you were a sole proprieter? how did you do that and were able to pay bus expenses out of a personal account? you deposited business funds into the personal account and paid business expenses out of the personal account? I think actually my first step would be to amend tax returns from prior years, start your account, figure out how much money should be in there now and work forward towards a percentage system from that account--- this amount gets paid by check to the personal account as profit.... this percent goes to x, this percent goes to y, etc. I'm not sure how you would handle an audit!

As far as type of business, if you don't have employees and you're a service based business (at home?) --- sch C sole prop is definitely the easiest--- how much protection against liability do you need? Furthermore, taxes are much simpler as a sch C sole prop. (unless you're me and have multiple businesses, hah). But if you need more liability protection, it's best to look to another type of business---- either a lawyer OR a CPA could help you---- hard for imamothers to help you unless we know exactly what type of business, where you operate, how you operate, IF you'll be hiring soon, etc.....

No DISadvantages to becoming a business--- only advantages as far as I know--- if your motive is profit, you had to have had separate accounts all along, and some way of paying business taxes.

STovah

Sun, Jan 26 2014, 11:33 am

Definitely call your accountant, but there's nothing wrong with paying business expenses out of your personal account if you keep track of your receipts, and having business income coming in on your name. If you want to become more of an official business, form an LLC, get a tax ID for your business and open a bank account. If you are the sole member of the LLC, you would just file a Schedule C with your return (if you are in NYS, you'd have to file one additional form and pay $25 annually).

amother

Sun, Jan 26 2014, 11:43 am

I don't currently pay an accountant for anything, I use DIY software for my taxes, so yes dealing with an accountant for this would be a significant expense.

TwinsMommy, yes I filed a schedule C as an individual/sole proprieter. I never had a separate bank account for business, in the past I had very few business expenses (providing a service out of my home - no office, no products...) and people just paid me directly, so I just put down my income and expenses from the business on the schedule C. I don't think I need to amend everything, I was very careful with all records and reporting using the step-by-step on my tax software. I don't plan to hire soon but I might sometime in the future consider opening up in an office with some assistants... not likely within the next year at least but I like to keep my eyes open, maybe if the right opportunity comes up I'd jump for it.

So, I realize now that I do need at the very least a separate bank account for my business expenses and revenues, any advice how/where to do that? In the past, when I provided a service I'd just accept payment as a personal check into my account, and self-reported it at tax time (and once in a while a large enough client to have a 1099)

STovah

Sun, Jan 26 2014, 11:51 am

If you decide to set up an LLC, you'd then open a bank account for the business. Otherwise, you can continue using your personal bank account and keeping records of everything.

There's really no downside to forming an LLC. Start at the NYS Dept of State website. They have a fillable articles of incorporation and instructions on how to incorporate as an LLC. The fee is $200. Once you have that done with your business name, go to the IRS website and file an SS-4 to request a tax ID number. And that's it. If you decide to leave it as a single member LLC (only you, without any partner), when you file your 1040, on the Schedule C, enter your LLC name and tax ID #. If you decide to include a partner, you will need to file a separate tax return for the business.