When I started my first business, I did it while still working a 9-to-5 job in the defense industry. I used the stability and income from my corporate career to help smooth the irregularity of my side business income for nearly four years.
I was dedicated to starting a successful side business because I wanted to control my own destiny. Perhaps you feel the same way, but you might not know where to start. While I can’t speak to what your business may do, I can help you make sure you start your business and handle your financial needs correctly with these 7 tips.
Sell It To One Person
Before you go through the red tape of incorporating, filing taxes, and other legal paperwork, test the proof of concept for your business. If you’re making something, let’s say jewelry to sell on Etsy, try to sell a few pieces to your friends and family. You can operate as a sole proprietorship until you’re sure you can turn it into a serious side business, one that warrants incorporation. If the business doesn’t do well or you lose interest, you don’t have to do anything special to unwind it. If it does do well, you can always do the next steps afterwards.
Name Your Business and Search Trademarks
Once you figure out what you want to do as your side business, start thinking up names and searching the Trademark Database at the US Patent and Trademark Office. Do not use a name that has been trademarked by someone else or you’ll face potential legal problems in the future.
Once you have a name that isn’t being used by someone else, you can begin the filing process.
Make the Necessary State Filings
No matter what your side business does, you will want to file the necessary paperwork with your state and county. At a minimum, you may want to incorporate your business as a limited liability company (LLC) because LLCs will protect you legally. The crucial part about an LLC is that you treat your business like a business – which means no co-mingling of personal and business funds, adherence to corporate formalities, and a few other rules.
Depending what services you provide, the state may require you to apply for and be granted a business license. Go to your state’s department of taxation and look for a small business center. Each state has a different name for it but everyone has one. It will be able to help you understand what filings you will need.
Get an EIN from the IRS
Once you have a business name, apply for an Employer Identification Number from the IRS. An EIN is like a social security number for your business, you’ll use it for all correspondence and it separates you from your business. It’s free.
Open a business bank account
Once you have a certified copy of your Articles of Incorporation and an EIN from the IRS, you can go to your local bank and open a business bank account. This is important because as an LLC, you cannot mix your personal and business assets. If you do, you lose liability protection. The easiest way to keep them separate is by having a business bank account.
Remember to hold annual meetings, keep corporate documents
Corporate formalities may be formalities but they still need to be completed. Be sure to have company bylaws, accurate meeting details (“minutes”), as well as an annual meeting of key stakeholders. For many small businesses, these are meetings of one person, bylaws built from a template, and very short minutes… but it still needs to be done. The LLC needs to operate like an LLC, even if it’s a very small one.
Remember your tax responsibilities
Now that your business is up and running you need to track your business income and expenses so that you are ready to file your taxes for your business at tax time. If you earn income from your business, you may also be responsible for quarterly estimated taxes. You’ll also have to pay in both halves of your Social Security tax and Medicare taxes (if you work for an employer, they cover half). These “self-employment taxes” equal 15.3% of your net earnings. But, there are deductions you can take around the Social Security and Medicare taxes as a small business.
With TurboTax, you don’t need to know which tax forms to fill out for your business. TurboTax asks you simple questions about your business and will include the appropriate tax forms in your tax return based on your entries and can find your industry-specific deductions. Want to talk to a live tax expert? You can with TurboTax Live via one-way video. And, if you use QuickBooks Self-Employed you can start tracking your business income and expenses when you start your business, estimate your quarterly taxes, and your information easily transfers to TurboTax at tax time.
Good luck entrepreneur!