Starting a New Business?

What you need to know

In today's uncertain times, you may be considering striking out on your own The opportunity to do exactly what you want and to be the one to benefit from your own abilities can be appealing (as can the flexibility of setting your own hours). However, there are many pitfalls that can trap the unwary small businessperson.

Before you begin a new business, you should contact a tax professional.  There are many items to discuss. One of the first things you will need to decide is what form of operation is best suited for you? In many cases, if you are running the business yourself, it makes sense to begin a business as a sole proprietor.  There are minimal initial expense and relatively few additional tax requirements (although this will depend on the specific type of business you are planning). Operating as a sole proprietorship gives you time to learn if the business will be profitable and sustainable.

If you are going into business with another person, you automatically have a partnership. A partnership need not be much more complicated than a sole proprietorship, once the questions as to how to divide expenses, labor and profits are settled.

There may be cases where a more formal business structure is appropriate.  For example, if limiting your exposure to liability is a concern, a Limited Liability Company (LLC) or a corporation may be in your best interest. These forms of business entities must be registered with New York State, and there can be substantial up-front costs. There are also much more rigorous reporting and tax requirements. Although it is possible to set up your own LLC or corporation using resources on the Internet, we strongly recommend you consult an attorney to ensure that you choose the best entity type for your business and that all requirements are properly met.

Hiring employees adds another layer of responsibilities and requirements.  If you decide you will need help with your business, there are additional financial obligations you will need to be aware of, including additional insurance and tax requirements. In addition, you must inform the federal and state government when you hire workers. You must also take care to pay workers properly. The government is looking very closely at companies that attempt to evade taxes by paying employees as independent contractors.

Many types of businesses are required to collect sales tax for states where they operate.  You must apply for permission to collect sales tax, a “Certificate of Authority,” prior to beginning business. It is illegal to operate a business subject to sales tax without a Certificate. In New York, you must apply at least 20 days before beginning operations. This form must be displayed at your place of business and be available on request from a state sales tax agent.

Even the simplest business should have its own, separate checking account. Properly accounting for income and expenses is vital. The expenses that you will be able to deduct against your business income will vary, depending on your type of business. Although most legitimate startup and operating costs are usually allowed, it pays to be prudent in your spending. A tax professional can review your potential deductions and show you how to keep your records. 

This article just scratches the surface. There are many additional considerations. To ensure that you are off to a good start, contact our office and make an appointment to discuss your venture BEFORE you begin.

(June 14, 2010)

[Back]