Gold Business Tips - Turning your passion into pure gold!

So you have an idea and it’s got you excited. It could change your life (and others). The only thing standing in your way is actually starting a business. This guide will let you know how.

Starting a business sounds overwhelming, I assure you it’s easier than you think. With less than $100 invested and a few print outs you can have a legally registered business that can collect income and write off expenses. It’s so easy I recommend everyone start one, just for the liability protection and capability to write off expenses.

While starting a business is relatively pain free, there are some decisions you will need to make based on your situation. Let’s cover those business basics and options you will need to go over.

The Basics of Starting a Business

The steps required to start a business are largely dependent on the scale of your planned venture and how you will be generating income. Reselling goods and produces for example requires a sales tax license where selling a service does not. Let’s cover the different approaches so you can see which best fits your situation.

Option 1: Let People Know

The most simplistic way of starting a business is just telling people you have done so. Technically speaking, there is nothing requiring you to register any paperwork or file any legal documents to accept money in return for performing a service. In the United States you can claim your income under your social security number, pay self employment taxes and go on your way. Your clients and customers will just write checks out to your name and you will claim the income at the end of the year. Easy peasy.

Option 2: Register a “DBA” or Doing Business As

If you want to look like a legitimate business you probably don’t want checks to be made out to your personally. If that’s the case, you can register a “Doing Business As” or DBA. A DBA is an informal way to say that you as a sole proprietor are doing business under a different name. This allows you to open a bank account and accept money under the new registered name.

The drawback to a DBA and just letting people know is the lack of liability limitations. If someone chooses to sue you over a business matter everything you own personally is at risk. This is the main benefits of registering the company at the state level.

Option 3: Forming an LLC

The most common way for individuals to start a business is the registration of an LLC, better known as a Limited Liability Company. This is similar to the LTD business structure in Europe. Registering an LLC creates a separate entity, protecting all of your personal property from business liabilities. This way if there is a legal issue only the business assets can be used as collateral.

Despite the technical sounding name, registering an LLC is quite easy. There is a small fee and a one page form which gets submitted to your state government. For a list of states and the proper forms see our post onregistering an LLC here.

Because the LLC becomes separate entity from yourself you also need to register at the federal level. When you claim your income at the end of the year you will do so using an EIN (employee identification number) rather than your social security number. An EIN allows you to accept income through a corporation or LLC and pay employees. For many starting business the only employee is the person running the company.

Luckily registering an EIN is almost instant and can be done online here. You will use your EIN to open a bank account under your new business name and use it to claim your income on your tax returns.

For most small businesses an LLC is ideal, however once you start growing, making more money and hiring more employees you may want to consider incorporating.

Option 4: Incorporate

Generally speaking, LLC’s are heavily tied to the individual (or individuals) who start them. Corporations are separate legal entities which can live on after the founders have left the company. There are many pros and cons to incorporating. The two primary factors to consider are taxes implications and issuance of stock. Corporations can issue stock, allowing many people (or groups) to purchase ownership of the company. This makes corporations a good solution for those looking for outside investors.

Corporations are also taxed differently than LLC’s and DBA’s. There are two primary types of corporations, S and C. “C” corporations file their own tax returns and are taxed as a separate entity. Dividends paid to business owners are then taxed again as personal income. This is often referred to as “double taxation.” S Corporations are considered “pass through” tax entities, meaning the corporation files a tax return but it is informational only. The corporation itself doesn’t pay any taxes. The benefit to an S corporation is you only pay on the income you withdraw as personal income.

Starting a corporation is very similar to forming an LLC. You will register documents called “Articles of Incorporation” with the state and file for an EIN at the federal level.

Where to Go From Here

Once you have filed for your business and have an EIN you will probably want to accept money. Any bank that provides business banking accounts will allow you to open a checking account under your business name provided you bring your DBA or EIN information.

Depending on your business you may need to apply for additional licenses. If you are selling products locally for example, you will need a sales tax license. In later articles we will cover some of these various different licenses in more detail. In the mean time, register your business and open the bank account and stay tuned for more information.