Keep it simple starting out. The simplest form of entity for running your first business is called a sole proprietorship. This form of ownership requires NO special communication or filings to the Internal Revenue Service until you start paying employees.
As a sole proprietor you are the owner/entity which might require only to acquire an occupational license if your county or municipality mandates one. As the owner, you are also liable to remit all state or city tax collections on retail or wholesale sales your business collects. Service businesses and most cross state sales are exempt from state tax collections.
If you are concerned about personal liability as a sole proprietorship then do the cheapest and simplest thing which is to buy a personal liability umbrella policy. The best way to avoid liability is to learn your trade well and keep accurate records.
Over 90% of small businesses fail or change ownership within the first five years. Plan your business to thrive but if it fails under a sole proprietor you simply stop doing business. No communication or special forms with the IRS, no additional taxes to get your investment returned and no high accounting fees to close out your entity.
Concentrate on building your business not communicating with the IRS. As a sole proprietor, the IRS will not even know you exist until after you file your first personal income tax return. This return will include a Schedule C which communicates all of the sales and expenses you recorded.
Courtesy of LessAccounting
For more information contact Neikirk, Mahoney and Smith at 502-896-2999
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