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Adminstrative Starting your Corporation You may wish to incorporate your business. If you do, you can now accomplish this via the Internet. We used this service for ourselves and it only took 15 minutes. You will need to decide if you will be a chapter S or C corporation, you may wish to check with your CPA for advice on this. We chose to be a Chapter S corp so profits and losses pass through to the owners directly without dividends to pay. If you elect S corp, then you will have to make your accounting year end in December ( instead of a fiscal year ending on a different month.) Also, there are other types of corporations available (limited liability, etc.) and there are different states you can choose to incorporate in (like Delaware and Nevada). A lawyer and/or CPA can give you advice on this if you need it. The following site is presented for your use at your option only. We are not giving you any legal advice, and you may not wish to or need to incorporate. We get no fees or compensation from referring this company to you. I am recommending it because I got tired of waiting to spend $500 to my lawyer who failed to get back to me in two months to get the job done. It really only took me 15 minutes to apply at this site below.
Licenses and Permits Your next course of action, before selling books, will be to purchase the correct licenses and permits from your local or state government. Usually the County Court House or City Hall is where you register your business and pay for the license. Different states, counties and cities have different regulations. If you are unsure of how to proceed contact the Chamber of Commerce or the Small Business Association in your area. It may take several weeks to have your licenses in hand. You may be able to start doing business before you actually have them. You will probably have the option of a retail or wholesale license. It is better to have a retail license because it does not exclude you from selling wholesale. In most states, a wholesale license will often exclude you from selling retail. If it is necessary to register a fictitious name, you may have to wait several weeks before doing business under that name. If you use your own name, you will not need to do a fictitious name registration. Remember if you are using Create-a-Book or Presto Print, you must modify it. Examples: Smith's Create-A-Book or 123 Presto Print. You have the right to use these trade mark names but you must distinguish yourself from the parent company and you must not sell other products under that name. You may not use Create-A-Book, Inc. or Create-A-Book by itself, or CreateABook by itself.
Obtaining Insurance To protect your investment in time and money, your business should be adequately insured, especially for uncontrollable risks. You should consider the following types of insurance:
Workers' compensation insurance is often mandatory when a company has employees. For the specific liabilities and requirements applicable to your business, contact your state or local government offices. For specific details about your business, contact an insurance broker who specializes in this field. Check with other small business owners in your area for resources that you may not be aware of. Frequently local business owners know the best sources for business insurance. Check with other small businesses in your area to find out which government office to approach. Also contact the business degree department of a local university or junior college if you have one in your area. Establishing Financial Records Record keeping is vital. The Small Business Administration says poor record keeping is a major cause of small business failure. Successful business owners find the services of a trained business counselor very helpful in this area. Maintaining and keeping good financial records facilitates successful management and accurate tax compliance. You need a record keeping system which documents:
Preparing for Tax Payments
The tax liability of a business is affected not only by its legal forms, but by numerous other management decisions as well. The business may need the help of an accountant or tax attorney to explain how the method of accounting, schedule of depreciation on property, and timing of business transactions affects tax liabilities. Payment of taxes should be scheduled and planned the same as any other expense.
Federal taxes:
1. Employer identification number and information
An employer identification number is required of all businesses with employees (all who work for a corporation are employees) and for any business engaged in exporting and importing. Ask for form SS4 to apply. Also ask for the booklets "Employers Tax Guide," "Tax Guide for Small Business" and "Your Business Tax Kit." Your local public library is also an excellent source for local law requirements and government regulations. There is usually a section in the library devoted to local issues.
2. Income Tax
For the sole proprietor, filing income tax returns is relatively uncomplicated. The owner submits a Schedule C (for 1040) with his individual income tax return. Form 1040 estimated tax returns and quarterly payments are normally required during the tax year.
A partnership's income is taxed as personal income to the partners, each partner reporting his own share of the profits on his individual tax return. The partnership itself is not taxed. However, its income must be determined and filed for information purposes on Form 1065.
Some of the income provisions important to businessmen are general business tax credits. Full details on job credits, research, energy and other credits are updated annually in the IRS Tax Guide for Small Business, publication 334.
3. Social Security Tax The employees' wages are subject to a Social Security Tax at a rate determined by the IRS. Since this rate is subject to change, please check with a reliable source each year. The employer matches this amount and either pays direct to the IRS or, if over a certain amount, forwards it by means of Form 8109 for deposit in the nearest Federal Reserve Bank or a local commercial bank authorized to receive it. Sole proprietors and partners pay a self-employment tax in lieu of Social Security Tax. This rate is also subject to change each year. Payment is calculated on Schedule SE to the Form 1040 and paid with the income tax payment.
4. Unemployment Tax Every employer who pays wages of $1,500 or more in any quarter or has one or more employees in each of 20 calendar weeks is subject to the Federal Unemployment Tax Act. The basic rate is 6.2% of the first $7,000 of taxable wages received by each employee. The tax must be paid by January 31 of each year by filing Form 940.
State Taxes
1. Unemployment Tax Most states have their own unemployment program. The employer pays the unemployment tax which goes into a state fund. Even self- employed businesses usually pay some form of unemployment tax. Check with your local officials for verification of local rules and regulations. Remember to update your information yearly. States and/or Counties change the local laws often and you need to be aware of the impact these changes may have on your home business.
2. Corporate Income Tax Most states have a corporate income tax. Should you be incorporated, consult your tax advisor for proper handling.
3. Sales and Use Tax Businesses are usually required to register with the state Department of Revenue and act as an agent for the state in the collection of the state's sales tax.
Accounting Considerations
1. Choose a name for your business, (Personalized Books of Pensacola, John's Personalized Books, etc.). It is good when the name chosen gives the public a clear idea of what it is your business provides in the way of goods and services.
2. Check on local and state business license requirements (city or county).
3. Check on local zoning ordinances and regulations.
4. Determine if your particular business requires a state license to operate.
5. Determine whether any type of federal permit or license is required.
6. Be prepared to make estimated income tax payments after starting your business or incorporating.
7. File sales and use-tax returns, if sales or use tax must be collected on your sales.
8. Locate a good insurance agent or retain and meet with an insurance consultant regarding fire, accident, liability, theft and other types of commercial insurance you may need. Then obtain the necessary insurance coverage. (If you plan to set up in a mall, you will need to check with them concerning their liability requirements.)
9. Check with a competent accountant or CPA in reference to all your tax requirements and accounting needs.
The above requirements apply to any business, whether or not it has employees. If you have employees, there may be additional requirements.
To Discuss With Your Accountant... For a sole proprietorship, report any self-employment income on Schedule SE of federal Form 1040, and report income or loss on Schedule C of Form 1040. A partnership files Form 1065 reporting partnership income. Each partner reports his or her share of self-employment income on Schedule SE of Form 1040 and income and/or loss from partnership operations on Schedule 3 of Form 1040. For a limited partnership, file Certificate of Limited Partnership with the secretary of state and copies in counties where the partnership has places of business or real estate (This is required in most states). For a corporation, file articles of incorporation, adopt by-laws, and observe necessary corporate formalities. File Federal income tax return Form 1120 (1120-S for an S corporation). If property is transferred to the corporation tax-free under IRC Section 351, report required information relating to the transfer on corporation's income tax return for that year. For a corporation or a partnership, apply for a Federal Employer Identification Number on Form SS-4, even if the business has no employees. File annual tax information returns, Form 1096 and the Form 1099 series, for payments of $600 or more for items such as rent, interest and compensation for services, and send 1099s to the payees. File Form 1098 for mortgage interest of $600 or more in a year which your business receives from an individual. Also, report any cash payments of more than $10,000 that you receive, to the IRS within 15 days. If your business is a corporation, be sure to obtain an adequate supply of federal tax deposit coupons in time to make your estimated tax payments. Last notes on the subject: If this is your first business, you should find some general books on business, which includes accounting. Take it slow, and use an accountant to help you get started. Everything we mentioned above is advice we knew to be correct at the time it was written, but may be out of date or not correct for your state or city. This chapter was presented to spark your interest in the subject of record keeping, licenses and insurance that any growing business will eventually have to deal with. Starting your own business can be exciting, and using your personalized book business to learn the ropes is a great way to begin the learning process that will continue throughout your entrepreneurial career.
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