What you need to know a private entrepreneur in California

Your business is no longer just a hobby - you are ready to start your profitable business and are trying to figure out how to do it right. Consider the possible options with the form of doing business as an entrepreneur (Sole proprietor) on the example of the state of California. If you are doing business in another state, despite the fact that federal regulations are mandatory for everyone, regardless of the state of business, you should definitely clarify the features of regulation and taxation of your state, region (county) and city.

Фото: Depositphotos

Legal form

Please note that when choosing a legal form, it is necessary to consider not only the amount of taxes, but also the place of business of your business - nexus. So, for example, even if you registered your company in the state without a tax or a zero rate, then for a state like California, it matters that you live and do business actively in California - then income from operations in the state will be taxed all relevant Californian taxes, and require all necessary business licenses and permits for business activities.

If you stopped at the form of doing business as Sole Proprietor, then this article is for you.

Benefits of doing business as a Sole Proprietor

At the beginning of any business, if you do not plan to attract investment or lending, doing business as Sole proprietor greatly simplifies the formal side of things:

• No need to pass any registrations;
• There is no minimum mandatory tax;
• It is not necessary to open a separate bank account;
• All money earned can be freely used for personal use.

Yes, you can start a business at any time of the year! And if you want the business to be conducted not under your name, and use a unique brand - then you will learn how to do it. It's simple, isn't it? But here we go to the next section.

Фото: Depositphotos

Formalities without which nothing

Freedom of enterprise does not exempt from accounting and formal procedures that are required by the area and / or city of your residence. Many cities in California need to buy or receive business license (business license) or another document, for example, a certificate confirming your right to conduct business in this city. This license is not a professional license that must be obtained to carry out certain activities, such as home kindergarten or the sale of food.

In fact, such a license is a form of local tax on the right to engage in business activities. Usually information about whether such a document is needed can be found on the city’s website by searching: business license. Different cities have different requirements and prices for such a license. Some require a procedure. zoning before applying for a license: that is, you must be sure that your business can be located at this address and in this room.

In addition, in California there is a sales tax (sales tax), which must be paid from the sale of many goods. Therefore, if you plan to engage in trade in goods, even through an online store like Etsey, you are required to register as sales tax payer. The tax rate differs depending on the city or region, so it must be clarified on the website of the relevant state tax authority, in the case of California, this is the Board of Equalization. The peculiarity of this tax is that, while doing one business, you are not always required to pay it. So, photographers pay it only if they sell a photograph or image on a physical medium: paper, flash memory or CD, but if through online (cloud) services, then not.

All of the above are requirements at the state, province (county) and city level where business will be carried out. Usually, an entrepreneur has up to 40 days from the beginning of the actual activity in order to obtain all the necessary licenses, however, in some cases all licenses and permits must be obtained first before you enter the business - therefore, to avoid fines, make sure that all the necessary documents you already have, or you know how to get them.

Dba. Doing Business As.

Even doing business as an entrepreneur, you have the opportunity to use a special name (brand) for your business. In order to advertise your business under a separate, rather than your personal name, you can go through the registration procedure in the area (county) where you are doing business and register your unique business name. This procedure is called a fictitious name registration. Typically, such registration is given on 5 years and requires re-registration after this period.

Employers Identification Number (EIN)

In the process of doing business, you will have to regularly provide information, where you need to enter your taxpayer code, usually an SSN or ITIN. Given the increased incidence of fraud using SSN / ITIN, it makes sense to get an Employers Identification Number (EIN) in your name. This number is identical to the number obtained by the companies, but in the case of a private entrepreneur, it is tied to the SSN / ITIN businessman. Personal EIN is available on the IRS website. Remember that a personal EIN is given to the 1 tax payer once in a lifetime and cannot be restored or changed.

Photo: Depositphotos9

Accounting

Usually private entrepreneurs keep records of cash method.

If your business involves complex operations involving the purchase and production of various products, warehouse accounting or other operations with a complex scheme for recording income or expenses, and you are not sure about the procedure for calculating sales tax, it’s time to contact a specialist. But in most cases, to record your transactions, you can install one of the many applications that will automatically take into account the income and expenses of your business, as well as what they were used for. At the end of the year, such an application will generate income statement (income statement) of your business, on the basis of which information will be entered into your tax return and the amount of your taxes will be calculated.

Despite the fact that in the USA there are no stringent requirements for keeping records of invoices and cash orders, as well as an established form for a check, it is normal business practice to issue a check or other document confirming the purchase of a product or receipt of a service to a customer. Consider that the client, if necessary, to inform the IRS about transactions with you, has the right to request your business information on the W-9 form.

Federal taxes

Regardless of whether you make a profit or loss, you must report to your federal government and state about your business activities. The federal tax return of the entrepreneur is attached Schedule C to the form 1040. If you do not plan to contact a tax specialist, carefully review this form and the instructions for it before the end of the year to understand how the government sees your income and expenses.

The basic principle that is used to evaluate whether certain costs can be used to reduce taxable profits is simple: such costs must be at the same time typical and necessary for your business. Typical means that such expenses are borne by companies operating in your industry, and necessary means those that contribute specifically to your business. However, expenses do not have to be exceptional to be considered necessary. Your business expenses should be separated from other types of expenses:

1. The cost of producing goods, that is, your costs of creating a product that sells your business;
2. The cost of capital. These are the costs of creating a business, assets and their improvement;
3. Personal expenses. In the case of a private entrepreneur, since all incomes immediately fall into personal disposal, it is very important to keep a clear and understandable account that separates business and personal expenses.

There are many legends about which costs can be taken into account, and which are not. The main mistakes relate to office and transportation costs. In recent years, the IRS has offered a simplified system for these entrepreneurs for just these expenses: the cost of a 1 square foot office and 1 business trip miles. Thus, an entrepreneur must maintain only a clear schedule of his trips and have a room that meets the requirements of the IRS for the office.

Usually, in the first year of a business, all taxes are calculated and paid until April 15 of the year following the calendar one. However, if you have a successful business and the probable amount of your taxes exceeds $ 1 000, you should start doing quarterly advance payments. To determine the amount of such payments, it is necessary to make an account 1040-ES.

Фото: Depositphotos

State and local taxes

Each state has its own special declaration for entrepreneurs. For example, the state of California in most cases has the same approaches as the federal government to account for taxable income.

In addition, as already mentioned, there is a sales tax, as well as fees associated with certain types of businesses. Before you start your business, make sure that your city or region does not have special legislation that regulates payments to the local budget from your business. Even if your activity is not immediately detected, there is an active exchange of information between the state and city tax authorities, and with a high probability in a few years you can find a letter from the city asking you to pay all local taxes, penalties and fines.

The purpose of this article is to give a general idea of ​​private business activities in the United States, tax accounting and necessary formalities. It's true that starting a business in America is easy, but that doesn't mean you shouldn't research the federal and state requirements for your business - being aware is being armed! Of course, consultation with a specialist will simplify starting and running your business, however, a lot of information can be found on local and federal websites for small businesses.

This material does not constitute written tax or legal advice (written tax advice). Any information from this material is not created for use by the taxpayer in order to avoid any sanctions imposed on the taxpayer, and also can not be the basis for consultation by third parties. Please always consult a professional service before taking any action based on the information from this material. Keep in mind that information may be outdated at the time of reading, and we do not undertake to guarantee the updating of information. Copyright www.Solven.pro. Xnumx

Original article published on the site Solven.pro. Reprinted with permission.

Read also on ForumDaily:

How to choose an MBA program at an American university

How to transport a startup in the USA without unnecessary problems: four practical tips

Green card "for talented": how easy is it to emigrate to the USA, having outstanding achievements?

Ten business tips from the richest people in the world

Do you want more important and interesting news about life in the USA and immigration to America? — support us donate! Also subscribe to our page Facebook. Select the “Priority in display” option and read us first. Also, don't forget to subscribe to our РєР ° РЅР ° Р »РІ Telegram  and Instagram- there is a lot of interesting things there. And join thousands of readers ForumDaily New York — there you will find a lot of interesting and positive information about life in the metropolis.