There’s no shortage of quick how-to guides on starting an online business, but they rarely cover the legal and technical aspects. Without this knowledge, you may be able to get a business off the ground, but you could wind up legally vulnerable or even slammed with taxes if you don’t know how to file correctly. Many new owners find themselves strapped for money after initial costs, fees and their first quarter (or year) of taxes. If you’re already short on money, consider finding ways to save before you begin. One option is refinancing your student loans, which can reduce your monthly payments and give you much-needed relief. Establishing a budget and as much financial stability is possible will help you start a business. Covering these bases will also ensure your company is well-managed and protected.
Although you may provide goods or services as a single entity, operating as a registered business rather than an individual has many benefits. A registered name, usually an LLC, will officialize that name and ensure that you are noted as the owner. A Limited Liability Company (LLC) are taxed differently than individuals, which will allow you to file taxes separately from your personal income taxes. If you work entirely on your own, then you’re better off registering as a sole proprietor. This means you are the sole owner and employee, i.e., you are the business. Being a sole proprietor or registered business will grant you the ability to file for a license in your state, open a checking account and apply for loans and grants for your entity.
Businesses are required to provide the IRS with quarterly estimated payments. This helps you save money in the long run and stay on top of company finances. Sole proprietors file a Schedule C form, which reports your income and losses. Self-employed individuals who are just starting out will use this form. LLCs can use a variety of forms depending on the size of their business. If you’re a small LLC, you may also use Schedule C, but you could also be registered as a corporation, in which case you would need to use Form 1120S or Form 1120. Partnerships, which are one of the most common LLC entities, use Form 1065. Filing taxes as a business gives you access to more deductions and possible exceptions.
You may need liability insurance to protect you and anyone you work with. Liability insurance protects your personal assets should you be sued by a client, contractor or other business. Even a small liability policy can make the difference between losing your entire savings or having to go under due to a single lawsuit. LLCs and sole proprietors should carry a liability policy to protect both their business and names. Imagine a client requests a service, and you provide it without a problem, only to be told that they have not received what they requested. You insist that you did your job and decline to refund or recompense them. A few weeks later, you receive a lawsuit in the mail, and you’re now facing thousands of dollars of legal fees on top of the amount you’re being sued for. Liability insurance protects businesses, even small ones, from these cases, which are far more common than you think.