Thinking About Being Your Own Boss?

If you have an entrepreneurial spirit and dream of becoming your own boss, you may eventually look into starting your own business. Many people have the desire and solid ideas for starting a business venture, but may either lack the courage to take the first step or simply don’t know where to start. Here are a few things to keep in mind that may help guide you in taking those first steps.

Develop a business plan. A business plan is important for obtaining a business loan to set up operations. It acts as a blueprint of your operations for the coming years. Make sure the plan covers the type of business, product or service offered, the type of customers, pricing, start-up capital, revenue and expense forecasts and marketing plans.

Registering a business. You’ll need to decide if you’re going to start a business alone (as a sole proprietor) or with others (as a partnership). Some states will allow you to simply start a business; others require you to register the type of business and follow certain guidelines before opening the doors.

Tax considerations. Most businesses need an employer identification number (EIN) to file tax returns. To obtain an EIN, you’ll have to file Form SS-4, which you can get from me, the IRS or the Social Security Administration. Your state may also require a state ID and/or sales tax number. If you need more information on obtaining these ID numbers, please let me know.

Employees. If you plan to have employees, it’s important to know that you’re generally responsible for payroll taxes, social security taxes, Medicare taxes and unemployment taxes. You’ll also need to collect federal and state withholdings (where applicable) and the employee’s share of social security and Medicare taxes.

Start-up costs. You may need to separate some expenses, such as:

•    Those you incur in exploring and setting up the business. In general, you may deduct $5,000 of start-up costs. The remaining expenditures are amortized over 180 months, beginning in the first year your business begins.

•    Those you incur from the time the business officially begins (currently deductible).

Other considerations. Before starting a business, it’s also important to consider the following:

•    Record keeping

•    Business location

•    Capital expenditures

•    Liability and asset protection

•    Fringe benefits

•    State and local requirements

Making your most important business decision

One of the most important decisions you’ll make is choosing what type of entity to operate as. Be sure to weigh your options, because an informed decision at the beginning can save you a great deal of time and expense later. Following is a list of the different entities.

•     Sole proprietorships are the easiest type of business to form and to terminate. As a sole proprietor, you are the owner of all business assets and are liable for all business debts.

•     Partnerships consists of two or more individuals who make a voluntary contract to carry on a trade or business. They are separate legal entities from their owners and are not taxable entities.

•     Corporations are separate legal entities apart from their owner. A corporation is responsible for all of its own transactions and can be sued separately from its shareholders.

•     Limited liability companies (LLCs) are business entities separate from their owners and provide the LLC member with a limited amount of liability, which is usually only common to corporations.

•     Limited partnerships follow most of the partnership rules, but limited partners are not (and cannot be) active in the business, as they are simply “investors” who share in the profits and losses of the business.

•     S corporations follow most of the rules of a corporation, but income and losses are passed through to shareholders, thus avoiding double taxation.

Since understanding the tax consequences and operating procedures under each form of organization is vital to your success as a business owner, please turn to me for information regarding entity considerations for your specific situation. If you have any questions on these topics I’d be happy to provide you with further information.