Setting up a business/ the hoops to do so

[top189h]

I have been thinking about starting a legitimate business part time until I can justify going full time. I have a four car garage that is already comercially zoned at my house. It happens to be right on a busy street and I have all the necessary equipment and such, and checked with the local osha and epa reps and since it has a concrete floor with no direct drainage I am okay to run out of there. I was full time at a body shop up until a year ago when I was moved up to management. After I stopped detailing for the shop, a lot of employees had me doing their personal vehicles on the side, and now around my neighborhood I have become basically the detail guy. Any way, my question is how many of the pros here set up and registered a business themselves, and if you did, where do you get the paperwork? If you hired an attorney to do it, was it worth the cost? Lastly in my research, I keep seeing all of these taxes and fees for employees, and since I will be my only employee (intend to go llc) do they still apply or will basic income taxes and self employment tax be it?

[Pureshine]

You can do everything in about 1 hour online. Your business license has to be approved through your city and the LLC is through the state cost me $300. After your get all your paper worked approved get insurance to cover your ass its cheap mine is only $30 a month. Then your good to go taxes are easy I file on line every quarter takes 15min. You don't need a attorney at all and if its just you the year end taxes are filled under your normal taxes. So every year I pay $120 dollars for the LLC and business license.
Todd
PM me if you want help be more than happy give you a hand.

[Rmd]

What state are you in? Business entity formation is governed by the laws of the state in which the entity's principal place if business is located.

[top189h]

Currently located in Maryland

[Rmd]

I can't give you specifics of Maryland, but I can offer some general comments based on your original post.

With regard to business entity formation, the typical forms are sole proprietorship, corporation, and limited liability company (LLC). You can operate as a business in sole proprietor mode, it is not necessary to form a distinct entity. There are reasons why people operate as entities though, and whether you should or not is totally dependent on your specific situation.

To operate as a sole proprietor, all the business activity runs under and is reported under your Federal Tax ID Number (which is an SSN for most people citizens). You keep track of revenues, expenses, etc and report it on your year end taxes, IRS schedule "c". It is possible to obtain business insurance, licenses, and the like as a sole proprietor and it is the simplest way to operate. Everything that the business does, is the same as you doing it personally from a tax and liability perspective.

Forming an entity is done primarily to put a barrier between your personal assets and finances, and those of the business operation. Most common forms for a services business are corporation and LLC. Although this is dependent on state law, an LLC is generally more flexible, but also more complicated. Its generally not advantageous to do a "single member LLC," which would be the case if it was just you owning and operating. Corporation is an easier beast to manage and deal with, and would generally be a better move for a small solo operator. Having proper insurance as a sole proprietor is a good way to insulate you from business liability/exposure if the potential risk is minimal.

If you choose to form an entity, either an LLC or a corp can elect to be treated as a "disregarded entity" whereby the business maintains separate income and expense records, files its own tax returns, and any resulting profit or loss is reported by you on your personal return. Tax on profit, or credit for loss, is taxed or credited along with all of your other income. This treatment is what as "S" corp is as opposed to a regular tax treatment of a corp called a "C" corp. Either one is the same corporation, the letters refer to the way that you elect for the Service to tax them and what return forms you use. S would almost always be preferable for a corp with few shareholders (especially if the few is actually one, and it is you). Regular "C" corps report income, and expenses, and have to pay a tax on profit themselves. If there is any profit left over after that, it can be paid down to you as income, and then you pay income taxes on that. You want to avoid the "double taxation" so make the election.

I cannot tell you the mechanics of forming an entity in MD. There are online companies that can do most of it for one, LegalZoom is one. I have had clients use it and it worked well for them. YMMV. Also, they merely create forms at your direction and are not a substitute for advice of counsel or tax professionals to determine what you actually need.

Obviously, the anticipated revenue and scale of your business will bear heavily on which way you go. The smaller the operation, the less likely it is that you need anything complicated or heavily structured. The presence of any employees other than yourself is also of paramount importance.
I'll post a little more later on the employee angle.

[Rmd]

Just re-read your post and you say you will be the only employee. Good, that is much easier to deal with. No workers comp insurance premiums, payroll taxes for others etc.

It is not a requirement that you set up a payroll and give yourself paychecks. In fact, it probably makes no sense in your situation. Writing paychecks involves determining how much you want to pay yourself and then you have to determine how much should be withheld from your own check for taxes, and set that aside. In addition, you have to pay over additional tax withholdings to the Service as the employer. (Employers also pay taxes on their employee's salaries). Computing all this is a PITA for a small operation. I believe quickbooks or other accounting software can do it, but then Quickbooks is a PITA itself.

you can certainly just write yourself checks out of the business profits, but you have to keep track of the financials. Cannot emphasize that enough; do not just "wing it" with money. If you are not actively payrolling yourself, then every quarter you prepare an IRS form where you list an estimate of revenues and expenses, and you pay the IRS a quarterly payment based on what you believe the profits will be. At the end of the year its reconciled on your returns and if you overpaid, you get a refund, or underpaid you owe. Just like regular W-2 employee. Your tax liability as determined by the tax return will include sums that are equivalent to the employer matching for income tax, social security disability etc that happens when you are working for someone else, and I don't remember the exact percentage at the moment.

Payroll is something that you will have to do if you hire employees, but that is down the line when your business starts rolling.

After you decide to form an entity or not, you will need to get the business licensed by the governmental agency applicable, be that city, county, whatever in MD. If your business name is anything other than your name, or the name of a corp you form, most states require a "fictitious name statement" that is filed with city or county or state. Its not a big deal, but must be done if required in your state.

Then, once you deal with all that, you can concentrate on trying to make money!

Lastly with regard to this and my prior lengthy post, these are general comments and not specific to your individual situation. I can't give you specific advice because I don't know the rules in MD and am not a lawyer there. These comments are also not intended to be a substitute for your discussing your specific situation with a lawyer or tax professional in your area, if you decide that you would feel more comfortable after talking to one about starting a business. The earlier post by PureShine is a helpful perspective from someone in the detailing business, but I can't definitely say that you don't need a lawyer, its up to you and your comfort level. An ounce of prevention is worth a pound of cure, though.

Hope it all goes well for you, and wish you success making money doing something you love.

-Ryan

[rustytruck]

I do what you want to do. Part time on the side business. Get a business license from city hall, set up a business checking account, insure your business. I'm a sole proprietor so my taxes are done by my account at the end of the year. Keep track of how much you earn and keep receipts of how much you spend.

[Robert8194]

I do what you want to do. Part time on the side business. Get a business license from city hall, set up a business checking account, insure your business. I'm a sole proprietor so my taxes are done by my account at the end of the year. Keep track of how much you earn and keep receipts of how much you spend.

Without this being any attempt to offer legal advice in Maryland, but as one who has had a couple of side businesses, I agree with Rusty. RMD has some great detailed (no pun intended) advice and I hope you grow to a business that needs to create an entity. But, for small side businesses like I have had, a business license and insurance are all that have been required. Your state or locale may require more. Insurance is critical and so many people eliminate it as too expensive. In my photography business, I had liability insurance but I also had coverage for my equipment in case it was stolen or even damaged. Good luck with your new business.

[g35_coupe]

Ryan--very informative posts. Thanks.

[Rmd]

G35. Thanks, you stated in a very succinct manner what I hoped the OP would take out of it, specifically trying to get a sense of perspective in relation to the areas he inquired about- entity formation, payroll and the like. My strong suspicion is that he doesn't need a corp, and does not need to deal with payroll; he just needs to know how to deal with quarterlies in preparation for a schedule C attachment to his 1040 at the end of the year.
Unfortunately I can't just tell him that because it could create exposure on my end. I am an attorney (which was probably obvious from the post) but I am not a Maryland attorney so I cannot provide specific advice to him in a professional capacity as I don't have a license to do so in that state. Hopefully the general nature of the advice was helpful.
BTW, I am typing this on phone while I wait for the application of CG Blacklight to cure on my car. Love this product on metallic paint b