Setting Up a Business 1-2-3

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"How Do You Set Up a Home Business?"

This is a question on many people's minds when they think about opening a business. Business set up procedures are virtually the same for all small businesses, whether they are home-based or not.

Essentially, the state and federal governments want to make sure that you are operating your business legally, and paying your taxes of course.

The legal aspects of setting up a new business are important, but they are not difficult or time-consuming. If in question, you can always contact the IRS or your local city hall. They will answer your questions for free, and they can be very helpful.

Here is what you should do:

Setting Up a Small Business:

1. Find Out Zoning Requirements:
   You may need to check zoning requirements for your business to make sure you can operate in your neighborhood (for example, if you plan to run a group home, day care, commercial cooking business out of your home).
   
   
2. Decide on a Business Structure:
   Will you run your business as a Sole Proprietor? Partnership? LLC? Corporation? Many home business owners start their businesses as sole proprietors because they are easy and cheap. On your tax returns, you simply report your business income on a Schedule C form.

   Forming a corporation is more complicated and costly, but it provides legal protection for your personal assets. Find out which business structure is right for you. Incorporate your home business

3. Register Your Business Name:
   If you are doing business under a different name than your own, you want to register your DBA ("doing business as", or commonly known as a fictitious business name) with your city or county clerk.
   
   
4. Get a Business License:
   You get a business license from your local government office (city hall). Licensing requirements vary by city and state and by business type. You can visit your local office in person or some download licensing applications from the city's website. (If you will be purchasing goods or materials for resale, contact your state about obtaining a resale license, which allows you to not pay tax on those items.)
   
   
5. Get Your Tax ID Number:
   You get a Federal Tax ID Number, or Employer ID Number (EIN), from the IRS. You can apply through their website, by phone, fax or mail. Apply for a Federal Tax ID Number. For fastest service, apply online. It can take up to five weeks to get your EIN if you apply by mail. (You can also apply online through www.TaxDocuments.com and get your Tax ID # in about 10 minutes)

   The EIN you receive is your permanent number and can be used for business tasks such as opening a business bank account, applying for a business license or filing a tax return. If you don't know if you need a Federal Tax ID Number for your business, answer these questions.

6. Taxes:
   Register with the state for collection of sales tax, if applicable and register with the city/county for local taxes. You can get more information paying taxes at the IRS website.

Resource for How to Set Up a Business:

There is a great guide called "Working for Yourself: Law & Taxes for Independent Contractors, Freelancers and Consultants". It has all of the important tax and legal information that new businesses need and gives step-by-step guidance on setting up your own business.

If you want more detailed steps to starting a business, check out the Business Start Up Checklist.