Small business expert Deborah Sweeney talks about the importance of naming your business, whether or not to incorporate and what you need to know about the IRS.
Most of us are well acquainted with summer lemonade stands – neighborhood kids dig out some store bought packets of lemonade mix (or real lemons, if they want to get fancy), throw them in a pitcher with some sugar and water, and look cute behind a table that’s set up in front of their house, determined to make some extra bucks. Were you one of them?
That little flicker of entrepreneurial spirit is inside everyone who spent their summer washing cars, mowing lawns and selling refreshments. And as the weather begins to heat up, maybe it is time to resurrect your inner summertime entrepreneur and try starting a side business. Many of the business owners who I talk to started running their businesses part-time before they were able to quit their day jobs and take their ventures on full-time. However, since this is a step above the kiddie lemonade stand, there are a few questions that most new entrepreneurs have about the legal aspect of their side business.
Do I need to file for a Doing Business As (DBA) name?
You probably should, as a DBA name is needed for some of the most rudimentary parts of running a business, such as opening a bank account for your business, receiving checks made out to your business, and, in some cases, being legally allowed to advertise. Most states see DBA names as a measure to protect against fraud, so they are fairly strict about having one. It is better to file for a DBA name early to make sure that your business name is available and you can actually run your business under that name. Now the only time you do not have to register for a DBA name is if the business’s name is your name. But if you add even a couple of words to that name, you need a DBA; Deborah Sweeney’s Lemonade Stand, for example, would still have to be registered as a DBA name even though it has my name in it. [pullquote]The only time you do not have to register for a DBA name is if the business’s name is your name.[/pullquote]
(Related: Deborah Sweeney talks about the top challenges in running her business)
How does running a small business on the side affect my taxes?
If your business is making money, the IRS is going to want its cut – there is no way around that. If you expect to owe more than $1,000 in taxes as a result of your business by the end of the year, you need to fill out a 1040-ES and send quarterly, estimated tax payments in order to avoid penalties and fees. But running a business on the side can also help you save on your tax bill as it allows you to write-off business expenses – things like a new computer, a separate phone line, and even advertising can be written off. Just make sure that you keep detailed records of everything so that you can prove you are running a legitimate business, instead of just using a dummy company to write off a new laptop.
(Related: 2013 Tax Laws: 6 Changes Business Owners Need to Know)
Should I form an LLC or incorporate?
That all depends on what sort of business you are running, and whether or not you feel the need to separate your home life from your professional life. Forming an LLC and incorporation both turn a business into its own, separate legal entity – that means the business can carry its own debts and it can also be sued, thereby protecting you financially and legally from your business’s liabilities. If you’re a tiny little company that makes crafts to sell on Etsy, or sells used books on Amazon, then it may not be worth incorporating or forming an LLC. But if your business requires that you take on a substantial amount of debt, or if you are in a high-risk industry, it may be worth pursuing alternative legal structures for your company.
Summertime has a way of awakening the entrepreneurial spirit in all of us – it certainly did when we were kids, and it undoubtedly still does to this day now that we’re grown. If you have been thinking about starting up a side business, summer is the perfect time to get the ball rolling. Of course there is a little bit more paperwork involved when you start a business as an adult – you certainly didn’t need a DBA name to deposit the $4.50 you made selling lemonade into your piggy bank. But running a business is very rewarding, so tap into the motivation that once led you to selling cold drinks to your neighbors and start running your own company!
Deborah Sweeney submitted her business story to our site for 1,000 Stories and now she blogs for us! Are you a woman who has started a business? Submit your story and it will be featured our site.