by Joyce
Before delving into the topic, I think it would be helpful to actually define what is a “sole proprietorship”. It is a business represented by a single individual without benefit of a separate legal entity (for example, corporation).
This business “entity” type tends to be somewhat popular because of the ease in which it can be “formed”…
- Determine if you will use your name (example John Doe) or a fictitious one (JD Photography).
- If you will be using a fictitious one, you will need to register it with your state (or city, if required) by filing a “DBA/Doing Business As” or Tradename form.
- Apply for a FEIN (Federal Employer Identification Number) – go to www.irs.gov. Not necessarily a requirement per se but your accountant and/or tax preparer will thank you later. (If you are a contractor of some sort, you will use this number when filling out W4 Forms).
- Open a separate bank account. Again not necessary but extremely helpful when managing your company finances…your accountant/tax preparer will thank you.
- Acquire any necessary licenses. If your business is one that requires it, make sure you are compliant from the beginning (for example, hair salon requires cosmetology licensing).
As with any business entity type, you should review the pros & cons to decide if that is what is right for you and your business. I thought about going into the pros & cons for this particular business type but decided against it. Instead I have provided a few related topic links that should cover that base pretty accurately.
Disclaimer: I am not an attorney nor is this to be taken as tax or accounting advice. Please seek the advice of a professional for specific insight on your particular business situation.
topic suggested by Malik Alex: Painter & Aspiring Gallery Owner
Related Topics:
Why You Should Never Operate Any Business As a Sole Proprietor
Sole Proprietorship: The Right Business Structure?
by Joyce
Not literally a change, per se, but more like an expansion of focus…
As I have grown as a business owner and grown as a blog writer, I have found that I’d like to write more about growing a small business, as a whole, instead of just the accounting/financial aspect of it. Now, don’t get me wrong… I’ll still write about accounting, finance, tax preparation/planning issues, payroll vs independent contractor issues, etc but going forward, I plan to write more about the journey of building a business and the things/tools that can help us along the way.
So why the change? I started my business 7 years ago with the primary aim of providing affordable accounting solutions to small business owners. That expanded to tax preparation for businesses & individuals…then that expanded to payroll services for small business owners. Now, I haven’t expanded because I think I know everything or can do everything, out of vanity or any desire of my own. In the past, as now, I have expanded because i took the time to listen to my clients & fulfill their needs. As their trusted advisor, I have been asked to point them in the right direction. So I will use this blog, this platform to do just that… point my aspiring entrepreneurs, microbusiness owners, small business owners in the right direction. It is my hope that you will look to my blog & my website as an invaluable resource and that you will visit often.
With my expansion of focus, I look forward to having guest bloggers in the near future. If you have an area of expertise that can help growing small business owners & aspiring entrepreneurs (especially law, marketing & branding)… I want to hear from you!
Cheers!
Joyce
Questions & Comments… as always, are welcomed!
by Joyce
- Freedom: outsourcing to a service provider allows you to concentrate on income generating activities, increasing your income…
- Reduces overhead: if you don’t have an accounting department, you don’t need the office space, telephones, cubicles, chairs, filing cabinets, etc. You can reallocate that budget to other areas or eliminate it altogether.
- Real time accessibility: offering you real-time accessibility to reports, you know what your cash position is at any given time that is up to date. Up to date information allows you to easily manage your cash flow… and manage your business.
- Secure, off-site storage/backup: not that anything catastrophic will happen but just in case, all your financial information is safe and secure. The cost and time it would take to recreate your finances could be prohibitive, if that were ever necessary. With off-site storage & backup, you don’t have to worry about that.
- No more hiring headaches: it’s hard to find and supervise the work of a bookkeeper when realistically, you have no idea what they are supposed to be doing and turnover is costly.
- No more training headaches: if hiring is a headache, training is too. And if you’re a small business owner training those coming and going through the revolving door of the employer-employee relationship can get expensive. That disappears with outsourcing.
- No more continuity/consistency issues: because an outsourcing provider is there for you day in and day out, you don’t have to worry about the “new person” and their learning curve.
- Less stress: you can relax knowing that your finances are taking care of by competent professionals and concentrate on driving your income and growing your business.
- Internal privacy: eliminate talking about the company’s financial health around the water cooler. Having an independent outsourcing service firm gives you, the owner, more privacy when it comes to the companies overall finances.
- Fixed monthly fee: like you, Common Cents is a small business and we don’t particularly care for hourly billing either… so we do a detailed review of your files to derive a fixed monthly fee for you.
Are you ready to drive your bottom line… upward? Let’s make it happen. ~Joyce
by Joyce
Q: I have started a small business. How do I report (tax purposes) payments to me as the owner? Is that considered income for self-employment or is the net profit from the business used for self-employment taxes?
A: For tax purposes, if you are a sole proprietor, the net profit of the business is used to figure out your self – employment taxes. Other types of organizations have different rules, but most use the amount actually paid to you to figure self-employment tax upon. This can vary from one geographic area to another.
However, no matter what business structure you have, corporation, LLC, partnership, or sole proprietorship, you should accurately track amounts that the business pays directly to you or to others for your personal items as these are paid out. Create an equity type account, use your name & the word “draws” as the account name (example: “Joyce Washington – Draws”), record these payments in this account.
In the long run, it helps to keep better track of how your business is performing if you input the payments as they are paid. Then when it comes time to figuring out your self-employment tax, you will have everything you need to determine the tax amount in one easy location.
by Joyce
I have a similar blog post in December, 2008. Enjoy ~ Joyce
Excerpt: Throughout the 2008-2009 recession we have seen a rash of articles about why it’s a good time to start a business. Sometimes I feel those articles are more a matter of the writer trying to convince himself or herself that it’s a good time to start a business, than convince anyone else! After all, some people lose their jobs and then become unwilling entrepreneurs.
Still, it’s true that a recession can be a rare opportunity to start a business. One reason: competitors (especially large corporations) are distracted by their own market challenges.
That can be good for you if you are thinking of starting — or expanding — your business. It means others in the marketplace are not minding the store. It could provide just enough of an opening in the market to get a toehold to scale new heights.
If you’d like to read more – Another Reason Recessions are a Good Time to Start a Business
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