Tax time is a good time for transitions, and that includes your occupation as well. These days, people are working in their own businesses more than ever before. Starting your own home-based business can be lucrative and fulfilling; it also presents some unique legal challenges that you may not have considered when working as a salaried employee.
Here are five great legal tips that can keep your home-based business out of trouble in the days ahead.
Obtain a Trustworthy Attorney and Accountant
Once you decide to start your own home-based business, you should identify two people right away to consult with: an attorney and an accountant, preferably with experience supporting your particular business type. More likely than not you will need a good attorney as you start your business and at other points down the line, and you will need an accountant to help you support you with issues like tax preparation.
Ideally, you will find these people as soon as possible, preferably before you even start your business, so they can provide sound advice to you every step of the way.
Choose Your Structure
Once you determine the type of business you are going to operate, you should choose the best form for the business to take. In some cases, a sole proprietorship may be the best choice. If you are operating a small business with someone else, a partnership may be the best choice. You may also want to establish an LLC or S Corporation, depending on your concerns with legal liability, taxes, and payroll.
The Small Business Administration provides advice about the different business structures and their advantages, but consider speaking to a consultant before deciding what shape you want your business to take.
Obtain all Licenses, Permits, and Certifications
Ignorance of the law is never an excuse, and one of the quickest ways to get your business shut down, or slapped with hefty fines, is to fail to meet the legal requirements to operate your business in the first place. You may need licenses, or a special permit, or zoning exception, to operate your business from your home in the first place.
Check with your town or city hall, as well as state and federal governments, to ensure that you have all of your legal requirements in line to operate your business. Make certain that you renew all your certifications and licenses in a timely manner as well.
Get your Tax ID
While a home-based sole proprietorship may not need a Tax ID, also known as an Employer Identification Number, or EIN, it is still a good idea to get one. This is the number that you will use to order items from vendors, and your business will require it if you take on partners or hire employees.
Additionally, using a Tax ID instead of your SSN (which you would use in a sole proprietorship if you did not have a Tax ID) leaves you and your business more vulnerable to identity theft. Getting a Tax ID is straightforward; just go to the IRS website and apply online.
Choose a Business Name and Protect It
Once you decide on a tentative name for your business, ensure that no one else is using that name already. Do a quick Google search to ensure the name is not in use, and then execute a trademark search to make certain no one has made a legal claim to the name you have chosen.
Failing to do this could force you to have to change your business name in mid-stream, or even expose you to legal liability. Once you have determined no one has a legal claim on the name you have chosen, you should consider trademarking it yourself, via the services of an attorney who specializes in this field.