This week we dived into the legal aspect of starting a web business. We looked at which type of business to establish from a legal perspective and we investigated licensing and taxes.
Type of Legal Structure
We investigated Sole Proprietorships/Partnerships, Limited Liability Corporations (LLC), S-Corporations and C-Corporations. I am just starting out and may be lucky to even hit the minimum $400 earned in a year required before you have to report your income to the IRS, but I still need to do things legally. Since I am not worried about liability at this point, I am going with a Sole Proprietorship. In Arizona it is as simple. Since I am writing a blog that is affiliated with Amazon.com and gets extra revenue from Google AdSense, I am providing a service that is not selling anything. I have very little I need to protect myself from at this point. As long as I am careful.
If I actually sold stuff I might consider an LLC. This gives you the benefits of a corporation with the simplicity of a sole proprietorship/partnership. In Arizona, the registration fee is $10. A very inexpensive way to go. The S and C corporations are are something for when you want to get into venture capital funding.
Business License
I am a service that is not selling anything, so I do not need a business license here in my town or Arizona.
Sales Tax
Since I’m not selling anything, I do not need to collect sales tax.
Income Tax
As a sole proprietor I am responsible to pay my business taxes on my personal tax return. There is a form you record your profit or loss from your business (Schedule C). You get to take some deductions for business expense as well.
Self Employment Tax
All business owners must pay Self Employment tax of 15.3%. This is in lieu of the Medicare tax you and your employer pay each pay check. You have to pay both parts, that is why it is 15.3%. This is filed on a Schedule SE. If you expect to pay $1000 or over in Self Emploment Tax you have to pay quarterly payments. It is best to put this aside each month. Every penny you earn counts.
Payroll Taxes
I do not have employees, so I do not have to collect any state or federal taxes. However, I will have to pay my own taxes on income. I may want to put a little aside each month for this purpose.
Conclusion
I’m glad it is so easy to setup my web business. I know that things like taxes and licensing may be necessary for future business ventures I may delve into. So I’m glad to learn all about it.
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