Starting a small business

Raymond Martinez10 said:Henry Edwards33, this "rule" mostly applies to service-based businesses—I highly doubt it makes sense for retail if we're talking about staying strictly "on the books."
A small mom-and-pop shop has a low EIN, so if they just have minor overhead—accounting, utilities, maybe some gas...—it might actually pay off to register for sales tax, at least according to my math. But look, you really need to run the numbers on paper first to be sure. One major headache with opting into the sales tax system is that five-year commitment obligation that amberbadger17 already pointed out.

It is honestly frustrating that they don't allow people—at least from what I have gathered—to opt out of the system once they've voluntarily joined. For instance, I opted in because I know my revenue will exceed $85,000, and I wanted to avoid the administrative headache, which is how many others operate. I am also certain my revenue won't come anywhere near $230,000.
I am not sure if my assessment is correct, but when the government implements a massive shift like this one, where the rules of business are drastically altered, they ought to give sole proprietorships the chance to choose their path again.🤷

wearytrucker22 said:The second you open that sole proprietorship, you're on the hook for payments.
Social Security, both parts of it.
Medicare.
Chamber of Commerce fees.
Business taxes.
If you're running it out of your home or a warehouse, you'll have to register for commercial electricity rates and adjust your water utility tariffs.
And some businesses end up paying extra for things like:
Water districts, state forestry services, local utility levies, etc.

It doesn't matter if you're already paying Social Security and Medicare through your day job.

Just set up an LLC instead.$3.25 That’s the move for you.

I was at the Social Security Administration again yesterday, and they told me I don't have to pay anything extra if I already have a full-time job where my employer handles my Social Security contributions. Now I'm getting conflicting stories from everyone. I told them, anyone who's already running a sole proprietorship alongside their main job should weigh in here.

I've already given you an answer right here. You aren't stuck paying taxes every single month; instead, it's all settled at the end of the year based on your 😉annual tax
.
Can we please keep the discussion focused on this specific thread—running a sole proprietorship while working a full-time job?

Everything you guys are saying is spot on. The Social Security Administration and the IRS know exactly what’s going on with your contributions if you’re running a sole proprietorship while working another job. Just like Lily said, those taxes are settled based on your year-end tax return—it's all calculated at the end. It feels pretty stupid, honestly, because you've got your employer paying in, plus you're doing it yourself. When I talked to the folks at the IRS, they told me my Social Security benefits would be much higher later on!
MY ADVICE: "Set up a flat-rate contract for the work you do through your own company," start a sole proprietorship, and just pay your own contributions!
Beyond the contributions, don't forget about the significant tax breaks and how they affect your income tax!
Any decent accountant who handles small businesses knows exactly how this works!
Just one more thing—if you aren't officially registered as an employee of your own sole proprietorship, you can't claim things like travel reimbursements for business activities as expenses until after you've paid your taxes!

Olivia Sanders24 said:To break it down at the start:

~$600 monthly for payroll taxes
~$100 quarterly for the Chamber of Commerce
~$113 annual flat tax for the business

Then you've got to factor in whatever your accountant charges you and all that good stuff...

So, if you're pulling in nearly $2,000 a month, a huge chunk of that just vanishes "immediately"...

How exactly do you calculate the corporate tax and the chamber fees?
I saw online that the business tax ranges from $300 to $667. As for the fees, I found a bunch of conflicting info, so I'm trying to figure out how to calculate this accurately.

rapidotter11 said:How exactly do you calculate the corporate tax and the chamber fees?
I saw online that the business tax ranges from $300 to $667. As for the fees, I found a bunch of conflicting info, so I'm trying to figure out how to calculate this accurately.

Well, local municipalities basically determine the corporate tax amount through their own specific ordinances. So, depending on which US city you happen to be operating in, your tax rate will vary.
The Chamber of Commerce fees also depend entirely on where your business is registered, and they usually break down into three distinct categories: the national Chamber of Commerce, the regional branch, and the Trade Association. You can find the specific amounts for each association listed in RRIF No. 2/12.

Not sure if I should start a new thread here—I'll leave it to the mods to move this if it's in the wrong spot.

My small business has been running for about 10 months now. I opened my account at Chase, but honestly, if I'd known what I was getting into, I would’ve gone somewhere else entirely.
The fees are killing me—it feels like they take a cut every single time I even glance at my debit card.🙂 They even hit me with fees just for pulling cash out of an ATM.
Is this standard practice for most major banks? I looked into Bank of America, but their fee structure is basically a mirror image of what I'm dealing with now. I heard something about Navy Federal being much cheaper, though.

Does anyone actually know the drill for switching banks? Like, how do you swap accounts, move the funds, and shut down the old one without everything falling apart?

Yeah, you just open a new account and shut down the old one.
You’ll also need to report the change to your health insurance, Social Security, and the IRS.😉

Not much else to do, really—just need to hunt down a decent bank where I can actually save some money. 😁

There’s a thread here dedicated to online banking. Vlado started it. I’m on my phone right now, so it’s a pain to drop a link, but try scrolling through it. Honestly, I’m worried you’ll find it pretty depressing—every major bank is represented in there, and they aren't exactly winning any awards.

Just a couple of things I'm chewing on here:

1. So, if someone who already has a full-time job opens up their own small business—and they fully intend to keep their current gig too—they end up covering those extra social security percentages on top of their base pay, right? Well, my question is about the freelancers or independent contractors hired by that new business. If those contractors are also already employed elsewhere, what’s the deal with their contributions? Do they have to pay them, and how much are we talking about?

2. I'm trying to wrap my head around the terminology used for sole proprietorships versus corporations. In a standard corporation, you talk about revenue and then profit. But in a small business setup like this, is "income" essentially the equivalent of what a company would call its profit? Or am I just getting my wires crossed?

3. Following up on that last thought—when it comes to the year-end totals for these types of businesses, are we looking at everything invoiced throughout the year, or only what has actually been collected? Basically, does the math focus on recorded revenue and expenses, or is it strictly based on actual cash flowing in and out?

I used to be a co-owner of a small business, but I ended up walking away because my partner and I just weren't on the same page. Now, I’ve got some outstanding Social Security tax debt hanging over my head, and honestly, money is tight right now, but I fully intend to settle up as soon as I'm able. My family and I are actually looking into opening a little shop—maybe a mix of a gift boutique and an internet cafe, potentially with an e-commerce side to it too. We have our own commercial space that we could renovate to fit the vibe. Since I used to run a clothing boutique, I know a little bit about the ropes, but what does it actually take to get this kind of setup off the ground? Also, can I even start a new venture while I still owe those taxes? For context, I’ve got degrees in both retail and business management. Thanks!

goldenwolf13 said:Just a couple of things I'm chewing on here:

1. So, if someone who already has a full-time job opens up their own small business—and they fully intend to keep their current gig too—they end up covering those extra social security percentages on top of their base pay, right? Well, my question is about the freelancers or independent contractors hired by that new business. If those contractors are also already employed elsewhere, what’s the deal with their contributions? Do they have to pay them, and how much are we talking about?

2. I'm trying to wrap my head around the terminology used for sole proprietorships versus corporations. In a standard corporation, you talk about revenue and then profit. But in a small business setup like this, is "income" essentially the equivalent of what a company would call its profit? Or am I just getting my wires crossed?

3. Following up on that last thought—when it comes to the year-end totals for these types of businesses, are we looking at everything invoiced throughout the year, or only what has actually been collected? Basically, does the math focus on recorded revenue and expenses, or is it strictly based on actual cash flowing in and out?

1. At the end of the fiscal year, a small business owner files their tax return, and based on the net income reported, the IRS calculates the total self-employment tax owed; they’ll eventually receive a notice in the mail regarding this amount. These taxes are then treated as deductible expenses in the following year once they've actually been paid.
Taxes are settled in aggregate alongside the rest of your filings...

2. It’s similar, but let’s not conflate the two. Business income functions much like a salary or a freelance fee; income is simply income, whether it comes from a W-2 or a 1099.
Profit, however, is what remains after you subtract your expenses from your revenue. While people often use "profit" and "income" interchangeably in casual conversation, in the eyes of the IRS, there is a practical distinction...

3. It all comes down to tracking receipts and expenditures.

Hey everyone... I just started diving into all the requirements for starting a small business here in the States, so please bear with me if my questions seem a bit naive. I don't want to waste too much time digging through paperwork if this isn't even an option... I was wondering if it would actually be possible to register a sole proprietorship or an LLC for making custom, chunky statement jewelry... even though I have a four-year college degree. Does the degree matter at all for that kind of work? And also... could I just sell everything through an online shop, or am I legally required to rent out a physical studio space for both crafting and selling? 🙄 Thanks so much in advance.

Since I graduated from business school, I’ve been dreaming of opening my own little second-hand clothing boutique! I would be just so incredibly grateful if any kind souls here could point me in the right direction regarding what exactly I'll need to get everything up and running. Does anyone have tips on where to source quality inventory? Also, should I be preparing a significant amount of startup capital, or is it possible to take advantage of those new laws regarding $3.25? And, if you don't mind me asking, is hiring an accountant absolutely essential from day one?

Maybe I’ve got this wrong, but when you look at how much easier and way cheaper it is to just set up a standard corporation, I honestly think it’s the smarter move. That’s exactly what led me to my own decision in this whole "sole proprietorship vs. corporation" debate.
As for whether or not I need an accountant? Honestly, asking that feels like asking if I need a primary care doctor versus a specialist dentist... it's a ridiculous comparison. Look, I apologize if my comment rubs anyone the wrong way, but I really wanted to point out that having a skilled, professional accountant is absolutely vital for any entrepreneur. I truly, sincerely hope that this "I can do it all myself" mentality falls apart once we are fully integrated into the USA. Once we're dealing with the massive complexity of tax laws where it isn't just one single rulebook anymore, but rather thousands of pages of regulations used by different states, people are going to realize they can't wing it. Maybe then, finally, this profession will actually get the respect it deserves.

Robert Perez7 said:Hey everyone... I just started diving into all the requirements for starting a small business here in the States, so please bear with me if my questions seem a bit naive. I don't want to waste too much time digging through paperwork if this isn't even an option... I was wondering if it would actually be possible to register a sole proprietorship or an LLC for making custom, chunky statement jewelry... even though I have a four-year college degree. Does the degree matter at all for that kind of work? And also... could I just sell everything through an online shop, or am I legally required to rent out a physical studio space for both crafting and selling? 🙄 Thanks so much in advance.

1. You certainly can. I believe jewelry making falls under a general service category, though I am not entirely certain, so you should probably do a quick search on local licensing. Your educational background or specific college degree doesn't matter at all in this regard.
2. You are absolutely able to sell online without needing a brick-and-mortar shop. In my view, opening a physical storefront for almost any niche isn't particularly wise these days, especially when you see how many businesses are struggling and closing down. From a purely financial standpoint, focusing on e-commerce is much more viable.
3. Just keep in mind that you will likely have to meet certain minimal zoning and facility requirements (such as having a dedicated space for inventory, materials, etc.). The rule is that the space must be designated for commercial use, meaning the building permit must list it as a business or commercial zone. This could be a mixed-use residential/commercial building, a studio, a warehouse, or something similar.

If you have any further questions, feel free to send me a private message. I am currently in the process of trying to launch my own small business for online sales myself, so I have a decent grasp of the logistics, even though I am still gathering information. 🙂

rapidgull9 said:Maybe I’ve got this wrong, but when you look at how much easier and way cheaper it is to just set up a standard corporation, I honestly think it’s the smarter move. That’s exactly what led me to my own decision in this whole "sole proprietorship vs. corporation" debate.
As for whether or not I need an accountant? Honestly, asking that feels like asking if I need a primary care doctor versus a specialist dentist... it's a ridiculous comparison. Look, I apologize if my comment rubs anyone the wrong way, but I really wanted to point out that having a skilled, professional accountant is absolutely vital for any entrepreneur. I truly, sincerely hope that this "I can do it all myself" mentality falls apart once we are fully integrated into the USA. Once we're dealing with the massive complexity of tax laws where it isn't just one single rulebook anymore, but rather thousands of pages of regulations used by different states, people are going to realize they can't wing it. Maybe then, finally, this profession will actually get the respect it deserves.

Alright, so I understand now—a full corporation; but could someone please give me some advice on what the total startup costs might look like? I'm looking to launch a business selling secondhand clothing for kids and adults, and if anyone has any insight at all, I would be so incredibly grateful for the help! I completely get the point about needing an accountant, and there really wasn't any need for sarcasm. I live in a small town where a shop like this would be such a blessing to the community since so many people are either out of work or struggling with low wages, so as someone currently looking for employment, I'm just trying to see if I can use these new laws to open a business for $3.25. Thank you so much, any guidance is truly appreciated!

rapidgull9 said:Maybe I’ve got this wrong, but when you look at how much easier and way cheaper it is to just set up a standard corporation, I honestly think it’s the smarter move. That’s exactly what led me to my own decision in this whole "sole proprietorship vs. corporation" debate.
As for whether or not I need an accountant? Honestly, asking that feels like asking if I need a primary care doctor versus a specialist dentist... it's a ridiculous comparison. Look, I apologize if my comment rubs anyone the wrong way, but I really wanted to point out that having a skilled, professional accountant is absolutely vital for any entrepreneur. I truly, sincerely hope that this "I can do it all myself" mentality falls apart once we are fully integrated into the USA. Once we're dealing with the massive complexity of tax laws where it isn't just one single rulebook anymore, but rather thousands of pages of regulations used by different states, people are going to realize they can't wing it. Maybe then, finally, this profession will actually get the respect it deserves.

Look, once we're in the USA, nothing about bookkeeping is actually going to change.

I honestly have no clue what you were trying to get at with that comment. If anything, keeping the books here in America is way more of a headache because the rules are constantly shifting under our feet compared to somewhere like Germany.

Alexander Ward7 said:Alright, so I understand now—a full corporation; but could someone please give me some advice on what the total startup costs might look like? I'm looking to launch a business selling secondhand clothing for kids and adults, and if anyone has any insight at all, I would be so incredibly grateful for the help! I completely get the point about needing an accountant, and there really wasn't any need for sarcasm. I live in a small town where a shop like this would be such a blessing to the community since so many people are either out of work or struggling with low wages, so as someone currently looking for employment, I'm just trying to see if I can use these new laws to open a business for $3.25. Thank you so much, any guidance is truly appreciated!

Take a look at over here. 😉