Post 2 | Business Entities +

Now that we have the first big questions out of the way, it’s time to make that business legal in the eyes of the State & Federal Government… gross, I know. Because you’re a creative and not an accountant or lawyer, (neither am I) it’s OK that you have ZERO idea what any of this means, and you don’t really even have to… hear me out.

I believe you are 100% capable of the next steps, but if you get anxiety (like me) around anything like paperwork, legal and taxes, then it’s time to seek out help. Unfortunately, when I was starting out, this was the stuff I had to figure out on my own. I felt like if I couldn’t figure it out myself then I wasn’t a real business owner- that is NOT TRUE AT ALL.

The next steps will require you to use either your legal name as your business, (Sole Proprietor) or you to have your business name figured out (LLC). Post 4 is an entire post about the importance of naming your business. I want you to start thinking about it now as we dive into the details of the next big steps. If you want to file for an LLC after this post, Id encourage you to hold off just until we talk naming your business.

Step 1- Filing for Your Reseller License.

A reseller license certifies that you don't have to pay sales tax when buying products on a wholesale basis for the purpose of reselling them to customers. In some states, a reseller license might alternately be called a reseller permit, resale license, resale certificate, sales tax permit, or other term. You can file for yours easily online by searching your state’s Department of Revenue website. Make sure it’s a .gov website and not a third party trying to charge you extra for doing it.
This license is usually renewed on a yearly basis, the costs is $20 in the state of Wisconsin to apply. Costs may vary in other states, but it’s a google away.

Step 2- Next is filing your business Entity.

A business entity is an entity that is formed and administered as per corporate law in order to engage in business activities, charitable work, or other activities allowable. Most often, business entities are formed to sell a product or a service- this is you!

Types of Entities- There are a handful, but for your creative business usually one of these two entities will fit that bill.

Entity One - Sole Proprietor

A sole proprietorship, also known as the sole trader, individual entrepreneurship or proprietorship, is a type of enterprise that is owned and run by one person and in which there is no legal distinction between the owner and the business entity.

Sole Proprietorships also have liability and functional disadvantages compared to other business entities. The biggest disadvantage of a sole proprietorship is the potential exposure to liability. In a sole proprietorship, the owner is personally liable for any debts or obligations of the business. One of the advantages of a sole proprietorship is its simplicity. You do not separate taxes for your business, you simply report all of your business income and losses on your personal income tax return. But with that simplicity comes personal liability for legal judgments, taxes, and debt. (Definitions via Wikipedia)

Entity Two - Limited Liability Corporation or LLC (single member)

A limited liability company (LLC) is a business structure in the United States whereby the owners are not personally liable for the company's debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship. (Definition via Investopedia)

Benefits for individual business owners, the LLC offers a one-person LLC form, which is taxed as a sole proprietorship. In addition to offering the owner all-important limited personal liability exposure, the LLC retains important tax benefits of the sole proprietorship, such as: owner compensation in the form of distributions of profit, which are taxed at the individual owner's potentially lower marginal tax bracket and pass-through of business losses, offsetting the owner's other non-business income. (Info via Entrepreneur.com)

You can register your business online here : https://www.irs.gov/businesses/small-businesses-self-employed/state-and-federal-online-business-registration

SIDE NOTE : It may be important to you to have a business entity to separate your personal and your business, thus an LLC makes more sense to you. The example someone gave me that stuck was - ‘If someone sues you, and you don’t have the legal protection of a business entity they can take everything thing from you, your money, your house, your personal things. If you have an entity and they sue you/ your business, they can only take money from your business. Your personal things like your home are safe’. Just keep that in mind.

Step 3- Getting set up for Tax Payments.

Yea… I know. Lame. BUT, if you set this up right in the beginning you will be so thankful come tax time. And smaller, more frequent, payments of taxes are easier on smaller businesses versus paying it all at the end of the year. AND, bonus, if you over-pay, it was like a giant savings account you couldn’t touch for a year!

I didn’t do this, I didn’t even realize I had to pay sales tax until the second year of my business, which by that point I already owed the Federal Government a couple thousand dollars and back taxes.. I don’t want that to happen to you!

Setting up State and Federal Income tax payments AND State Sales tax is something you can do online through your state’s Department of Revenue and Federal Payments, and can be set up here : https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes .

You can pay income and sales tax yearly, biannually, quarterly, monthly or biweekly. Your Department of Revenue will usually let you know by mail the frequency with which they will require you to pay, it is based on sales. The more you make, the more frequently they like to be paid. Makes sense.

Now, if you’re head is spinning, it’s OK. I get it. It’s A LOT and this is not usually where a creative person’s head’s at. In fact, it’s the complete opposite part of the brain we are used to using. So, if any of these steps seems daunting, I suggest calling a small accounting firm to help you. They will usually charge by the hour, but they will set it all up and show you how to take it from there. It is worth every penny.

NEXT POST TOPIC

Book keeping & tracking expenses and more