a business in the United States can be an exciting prospect....or
a frustrating, confusing task that seems impossible to conquer.
will apply to your situation will depend on how well you plan,
how much you educate yourself, and how disciplined you are in
start out with a great idea, but donít know how to translate
that idea into a viable business.
Do I Start?
step should be your business plan. Many would-be entrepreneurs
will skip this step, choosing the fly-by-the-seat-of-your-pants
method instead, but starting a business without a business plan
is like embarking on a long journey to an unfamiliar place without
plan serves to define your goals, map out your plan of how to
achieve them, and will provide you with a sense of purpose and
accomplishment along the way.
plan should include the following elements:
1) the description of the business
2) the marketing plan
3) the financial management plan
4) the management plan
One of the first decisions your will have to make is what form your business should take. The most common forms are:
• Sole Proprietorships
you choose will depend on many factors, including:
• Legal restrictions
• Liabilities assumed
• Type of business operation
• Earnings distribution
• Capital needs
• Number of employees
• Tax advantages or disadvantages
• Length of business operation
Some of the advantages and disadvantages of each type is outlined below:
This is the easiest and least costly way of starting a business. A sole proprietorship can be formed by finding a location and opening the door for business. There are likely to be fees to obtain business name registration, a fictitious name certificate and other necessary licenses. Operating a Sole Proprietorship is easiest as the owner has absolute authority over all business decisions.
several types of partnerships. The two most common types are general and limited partnerships. A general partnership can be formed simply by an oral agreement between two or more persons, but a legal partnership agreement drawn up by an attorney is highly recommended. Legal fees for drawing up a partnership agreement are higher than those for a sole proprietorship, but may be lower than incorporating. A partnership agreement could be helpful in solving any disputes. However, partners are responsible for the other partner's business actions, as well as their own.
A business may incorporate without an attorney, but legal advice is highly recommended. The corporate structure is usually the most complex and more costly to organize than the other two business formations. Control depends on stock ownership. Persons with the largest stock ownership, not the total number of shareholders, control the corporation. With control of stock shares or 51 percent of stock, a person or group is able to make policy decisions. Control is exercised through regular board of directors' meetings and annual stockholders' meetings. Records must be kept to document decisions made by the board of directors.
Small, closely held corporations can operate more informally, but record-keeping cannot be eliminated entirely. Officers of a corporation can be liable to stockholders for improper actions. Liability is generally limited to stock ownership, except where fraud is involved. You may want to incorporate as a "C" or "S" corporation.
What About Taxes?
It is very important to understand the tax laws that apply to the type of business you have chosen.
There are four basic taxes that you should be aware of:
You have to file an Income Tax return if your earnings were more than $400 for the tax year. Even if your earnings were less than $400 from your business, you may still have to file a 1040 if you meet any of the criteria listing in the 1040 instruction booklet.
If you expect to owe more than $1,000 in Income Tax, you may have to pay Estimated Taxes. There are four ways to pay estimated taxes:
• By crediting an overpayment on last year's return to your present estimated tax return
• By sending in your payment with a payment-voucher from Form 1040-ES.
• By paying
electronically using the Electronic Federal Tax Payment
For EFTPS information, call 1-800-945-8400
Tax must also be paid if your net business earnings were more
than $400. SE Tax is a Social Security and Medicare tax that provides retirement benefits, disability benefits, survivor benefits, and hospital insurance benefits to you under the Social Security system.
You can deduct 1/2 of your SE tax from your net earnings on your 1040.
• Pay wages to one or more employees
• Have a KEOGH plan
• Operate as a corporation or partnership
• File any of these tax returns:
3. Alcohol, Tobacco or Firearms
To obtain an EIN, you must fill out an SS-4 which is available through
Excise Taxes apply to certain types of businesses and certain business activities.
Some examples are:
• Tractor or heavy machinery sales
• Tobacco, alcohol or firearms manufacturing or sales
• Business activities or products that have environmental impact
For a list of businesses for which excise taxes apply, see the IRS website.
Also available from the IRS is their Small
Business & Self Employed Tax Center offers advice, publications and links to useful information. They also offer a Tax Calendar which
tells you when to file returns and make tax payments.
You should also be aware that the laws vary by state and by industry, so it is highly recommended that you consult a tax advisor in your area. You can get information on local zoning regulations from your city hall, county court, or state department of taxation
For More Information...
The Small Business Administration is an excellent source of information and a great place to start. You can get a free Startup Kit, download a Business Plan Tutorial and find many free publications.
About the Author...
Sharon Davis is the Mother of two girls, the owner of 2Work-At-Home.com and the Editor of the site's monthly ezine, America's Home. In her spare time she reminisces about what it was like to have spare time.