I'm an insufferable goody-two-shoes. Don't let the bad mouth, fashionable leather jacket, and 2 visible tattoos fool you; I'm anxious about getting in trouble.
The thought of getting a fine, a ticket, or a slap on the wrist for doing something incorrectly has always concerned me. This quirk has made things like drinking outside (what about the open container laws!?) and long car trips (speed traps, oh my!) slightly less fun for me over the years. But fortunately, my neurosis has made me into a diligent business woman in the realm of all things legal and tax-related. When I started my business, I was apprehensive about making sure that I was doing everything "right", so I didn't run into any problems down the road. Because of this, I can happily speak on what I've learned in the hopes of helping answer some of your questions as you travel down the small business ownership path yourself. Below is a short list of some of the legal considerations that you may have to navigate when you begin your own business. Check 'em out and feel free to ask some questions or add things that you've experienced in the comments.
***Before I dive into anything legal, I'd like to mention that asking me (or anyone that's not a lawyer, attorney, or accountant) about this kind of stuff is like asking a circus clown how to do an "understated, daytime makeup look." Probably not a good idea. HOWEVER, I can tell you about some of the stuff that I have encountered and what I've learned along the way. Again, don't live and die by my advice, just use it as a way to save yourself some stress and a few hours of time scouring the internet.***
Business Entity: Your business can have one of many structures that effect pass through taxation and tax filing among other things. Sole Proprietorship, an LLC, C-Corp or S-Corp each have their benefits and disadvantages that need to be weighed when you're starting your own business. Check out the SBA's info on this topic, here. I can tell you that generally, registering with the state is a realtively straightforward process. In Pennsylvania, an LLC costs $125, takes about 10 days to get and helps to protect your personal assets from being affected if something goes wrong with your business. Start the process here.
EIN: Your EIN or Employee Identification Number is like a social security number for your business. A sole proprietor doesn't need it, but it's nice to have as it can help protect you from identity theft and is necessary if you eventually need to hire employees. You can also use it when you're filing taxes and filling out paperwork for things like bank accounts. Don't let places like LegalZoom charge you for it! It's free and takes all of 15 minutes filling out paperwork online get. Click here to sign up for one.
DBA: A DBA name is your Doing Business As name. It's for sole proprietors that are doing business under a business name that's different from their given name (ex: Nicolette Spudic, DBA Pick Your Poison Consulting), or for LLCs and Corporations that are named something other than what the business is being called. A DBA name can be filed with your state and in Pennsylvania, costs $70. Click here for the form.
Quarterly Taxes: When you're employed by an employer and receive a W-2 and a paycheck, your employment taxes are split. Your employer pays half of your taxes, and you pay the rest. When you're self-employed, the entire tax burden is your responsibility. Since you don't get it taken out of your pay like when you receive a paycheck, you need to pay your employment taxes to the Government on a quarterly basis. You can do this several ways, but I e-file using EFTPS.gov. All you have to do is create an account, link your bank account and pay your employment taxes each quarter. I use Quickbooks Self employed (check out that link for 50% off for 6 months of service) to estimate my self-employment taxes for each quarter, so I don't have to do any of the math by myself. NOTE: You usually don't have to pay quarterly taxes the first year in business which is a nice perk when you're just starting, but it's a good habit to start as soon as your up and running and showing a little bit of income.
Write-offs: It's a definite disadvantage to have to pay a higher percentage of your taxes when you're self-employed. However, you have the awesome ability to write off your business expenses to reduce the amount you pay in taxes throughout the year. You may have to do some research about some specifics in your state, but generally, this is a great benefit to a small business owner. So far this year I've written off a portion of my mortgage and utilities for my home office, a repair on my laptop, and countless miles traveled to and from meetings. For me, again, the best way to account for these costs is Quickbooks. My account links up to my debit card and Pay Pal accounts and helps me categorize my spending and income appropriately, so my quarterly taxes are properly calculated.
Is that all there is to it? Nope, but it's a start. Having a good idea of taxes and legal matters helps you to be prepared and ready in case something does go wrong. I suggest that you take this aspect of starting a business seriously as it does really help to be ready for anything. Other than what's above, don't Jaywalk, don't pee outside in public and don't even think about driving over the speed limit. You might get in trouble.