Business Startup: Reference Manual

Business Startup

Reference Manual

Randall Oand#39;Dwyer

Copyright © 2023 Randall O’Dwyer

All rights reserved

First Edition

PAGE PUBLISHING

Conneaut Lake, PA

First originally published by Page Publishing 2023

ISBN 979-8-89157-149-5 (pbk)

ISBN 979-8-89157-160-0 (digital)

Printed in the United States of America

Table of Contents

Introduction

Chapter 1

Where Do I Start?

Chapter 2

Rambling Thoughts: Words of Encouragement and Discouragement

Chapter 3

The Basics

Chapter 4

Addition Thoughts

Chapter 5

Road-Apples, Road-Gator, and Things to Watch Out For

Chapter 6

Banking

Chapter 7

Insurance by David Sczapa

Contributed by David Sczapa, The Paul Gebhard Agency Inc., 480-244-5833, [email protected]

Chapter 8

Types of Pension Plans

Chapter 9

Advertising by Hayden Hassell

Contributed by Hayden Hassell, 810-889-9776, [email protected]

Chapter 10

Budgets

Chapter 11

Hiring Friends and Relatives (aka the Good, the Bad, and the Ugly)

Chapter 12

Raising Capital

Chapter 13

Home Office

Chapter 14

Depreciation

Chapter 15

Chapter 16

Sales Tax

Chapter 17

Meals and Entertainment

Chapter 18

Client Gifts

Chapter 19

When to Pay Yourself a Salary

Chapter 20

Taxes, Tax Returns, and Due Dates

Chapter 21

Exit Strategies by Michael Ferrin and Bradley Weech

Contributed By Michael Ferrin (480-344-0934) and Bradley Weech (480-635-2828) of Davis Miles McGuire 

Gardner, PLLC, 40 E Rio Salado Parkway, Ste 425, Tempe, AZ 85281

Chapter 22

Estate Planning by Michael Ferrin and Bradley Weech

Contributed by Michael Ferrin and Bradley Weech

Chapter 23

In Conclusion

About the Author

Introduction

I've written this manual for those of you who have ever considered going into business for yourself and are wondering where to start. Most of these thoughts are based upon my forty-plus years of experience as a tax accountant, and I am hoping to answer some of the basic questions you will be facing when deciding to become self-employed.

If you love the steady, guaranteed paycheck and being able to walk out the door and never give your job a second thought until you arrive the next morning, then read no further and throw this manual as far away as you can!

If you love the thought of being your own boss, think you can do it better, don't mind the thought of being the last in line to get paid, are stubborn as a mule, and can wear several different hats at the same time, read on!

Chapter 1

Where Do I Start?

Decide what type of entity you need to be.

File the appropriate papers with your state.

Get your federal EIN number if you incorporate and/or have employees.

File a Form 2553 within seventy-five days if you decide a sub S election is appropriate.

Open a bank account with approved entity papers and EIN number.

Get a good accounting software package to keep track of income and expenses.

Keep your eyes open for the following:

A great tax accountant (yours truly, of course!)

A great business attorney

A great banker

A great investment adviser

A great insurance agent

A patient psychologist (LOL. If you have come this far, it's too late!)

Chapter 2

Rambling Thoughts: Words of Encouragement and Discouragement

When it works, you are a genius; and when it fails, you are a fool.

Ask enough opinions, and you will get more than enough answers.

If you don't think you can succeed, you won't; but if you are determined enough to make it happen, it will.

Being self-employed is like gold mining and gambling. Odds are always stacked against you until you decide it's time to make your own odds.

You will learn more from expensive failures than you will ever learn from friends, consultants, and the experts (otherwise known as the University of Hard Knocks).

There is an exception to every rule, but when it comes to taxes, there is usually an exception to every exception, except with certain exceptions!

Still interested? Then let's get started!

Chapter 3

The Basics

Considerations and suggestions. When deciding which of the above types of entities you want to be, consider the following:

How much profit you are planning to make each year. 15.3 percent self-employment tax versus cost of additional tax return.

How much liability you will be exposing yourself to each year? (What mistakes will you make, exposing your company to potential lawsuits?)

What does your state licensing agency require?

Types of entities (business structures). What kind of entity should you be?

Sole proprietor

Dba (doing business as)

LLC (limited liability company)

PLLC (professional limited liability company)

Partnership (formed at the state level)

General partnership

Limited partnership

LLC (limited liability company)

PLLC (professional limited liability company)

Corporations (formed at the state level)

C Corporation

S Corporation (sub S corporation is a federal election after corporation, LCC, or PLLC is formed through the state)

Disc corporation (domestic international sales corporation)

501(c) Nonprofit

Types of business structures/entities explained. Let's briefly examine each type of entity to help determine which is best for you.

Sole proprietor. As a sole proprietor, you conduct business under your own name and usually under your own Social Security number. Some obtain a DBA (doing business as) and even get a separate EIN number (employer identification number for payroll tax purposes, etc.). A DBA means you are operating under an assumed name, and you are usually required to register your DBA with the Secretary of State. Example: Charles Smith dba Charles Hotdog Stand.

Advantages

Simplest to operate.

Puts your name and reputation out there.

Disadvantages

You pay a self-employment tax of 15.3 percent on net profits (revenues minus deductible expenses equals net profit) in addition to regular income taxes because your income is considered active income.

If you get sued, your personal assets are exposed, and you could lose them.

Profit or loss is usually reported on a Schedule C within your personal tax return.

LLC and PLLC

An LLC (limited liability company) and a PLLC (professional limited liability company) are very similar, except if you are required to maintain a license for your profession, then you are usually required to have a PLLC instead of an LLC. (Check with your state licensing agency if you hold any kind of professional license.)

Both LLC and PLLC are designed to provide you with only limited