by Deborah Sweeney | Featured Contributor
Summer is literally right around the corner, and it seems that warm weather and entrepreneurialism go hand-in-hand. Every summer, without fail, I hear about all sorts of new business ideas and ventures popping up. Unfortunately, these businesses are often seen as side-projects, so only a few of summer’s new entrepreneurs treat these ventures as real companies. And, while I know there are plenty of clandestine Etsy and eBay shops operating under the table, you really don’t want to play that game, or your fun summer project could become a nightmarish tangle of fines and late-fees. For anyone thinking about opening up a side-business during the summer, here’s what you need to know to keep everything aboveboard.
You really, really do not want to get on the bad side of the IRS. Self-employment tax is no joke, and if the IRS thinks you’re trying to avoid what you owe, you could be audited. And don’t think low sales grant an exemption. Anyone who earns a net of $400 or more during the tax year must report that income, and pay self-employment taxes. Underestimating success is one of the biggest mistakes I see new small business owners make. Trust me – it doesn’t take long to hit that $400 threshold. On top of that, if you expect to owe more than $1,000 in income tax, you also have to send in estimated tax payments. Now, this is not all bad news. Your workspace/office, and even some start-up costs, may be deductible as long as the company made a profit, or was run with the clear intent of making one. Keeping track of your finances and tax obligations, then, is really in your best interest.
‘Doing Business As…’
Making businesses register a ‘Doing Business As’/Fictitious/Trade name is a fraud prevention measure. States require them so that fraudsters aren’t able to hide their identity behind the business, scam people, and then go into hiding. The only time you don’t need a DBA name is when you’re selling a product or service under your legal name. But if you change it slightly, you will need to register. For example, if your name is Jane Doe, and you sell flowers, you can call your shop Jane Doe and avoid filing a DBA name. But if you put Jane Doe’s Flowers in an advertisement or on a sign, you have to file the paperwork. A lot of summer businesses use online storefronts with admittedly cute and clever names, but fail to register them. Remember, once you start selling under that name, you are legally obligate to register the DBA with your state. That registration will also allow you to open up a business bank account, and accept payments made out to the company. So, again, following this rule is a good idea as so much is tied to a DBA.
Licensing is vastly misunderstood – unless you’re selling a federally regulated product, like liquor or firearms, a business license is more of a way for your state, and occasionally your city and county, to make a little extra money and keep track of their local economy. Know that city, county, and state governments all keep an eye out for companies doing business without a license by trying to find evidence of business-related activity. Listing your company in a public directory, or putting out any sort of marketing material, even online, could count as business activity. Thankfully registering isn’t too hard. Most states, and even some local governments, put all the forms online. All you have to do is fill them out and send in a check. One important thing to keep in mind, though, is that you may have to file an extra form if the business is operated from a residence.
Taxing, a DBA name, and licensing – those three small hurdles are normally all that set a clandestine business apart from a legal one. My advice is always to run a business like a business. That means keeping good records, reporting income, paying taxes, and filing the paperwork you need to stay on the good side of the local, state, and federal governments. This may seem like a lot of work for a summer business, but trust me; the resulting peace of mind is worth the effort. Plus, you never know – this small summer experiment could wind up being your new career!
Deborah Sweeney – Legal Expert, CEO, MyCorporation.com – Calabasas, CA
As CEO of MyCorporation Business Services, Inc. (MyCorporation.com), Deborah Sweeney is an advocate for protecting personal and business assets for business owners and entrepreneurs. With her experience in the fields of corporate and intellectual property law, Deborah has evolved from lawyer to business owner. She has extensive experience in the start-up and entrepreneurial industry as she has been involved in the formation of hundreds of thousands of businesses for MyCorporation.com’s customers.
Ms. Sweeney received her JD & MBA degrees from Pepperdine University. She is active in the community and loves working with students and aspiring entrepreneurs. She serves on the Board of Regents at California Lutheran University and is a founding member of Partners of Pepperdine. Deborah has served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in the areas of corporate and intellectual property law. Ms. Sweeney is also well-recognized for her written work online as a contributing writer with top business and entrepreneurial blogging sites. She is a regular contributor on Forbes, American Express, Social Media Today, and BlogHer among many others.
In her ‘free’ time, Deborah enjoys spending time with her husband and two sons, Benjamin (8) and Christopher (6). Deborah believes in the importance of family and credits the entrepreneurial business model for giving her the flexibility to enjoy both a career and motherhood. Follow her on Twitter @deborahsweeney and @mycorporation