What are the legalities required for opening and operating a small home based business?

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What are the legalities required for opening and operating a small home based business?

I plan to start a freelance proofreading business at home. I only plan to employ myself, I won’t have any business expenses except my internet bill. For that type of business, what type of business should I register it as – LLC, Sole Proprietor, etc.? I want whatever option is easiest when comes to filing taxes. That brings me to my next question, how to do I start the business? Do I apply for my Fed ID then the company name? Also, what type of a business license would I be required? Is there a way I can pay taxes weekly or monthly as I would out of a paycheck? I’m good at what I do but I haven’t the slightest idea where to begin in starting my home based business.

Asked on January 30, 2017 under Business Law, Ohio

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

1) All business structures have pros and cons, but there is a reason many self-employed people (including myself) use an LLC: it protects your personal assets from most (but not all; no protection is absolute or perfect) business-related liability (hence "limited liability company"); by separating business and personal finances, it facilitates taking business expenses as tax deductions; if you opt for "partnership" (not "corporation") tax treatment, it will be a disregarded or pass through entity with no corporate double taxation; it involves less formalities than a corporation; and it looks more "professional" to have an LLC than to work in your own name (though you could be a sole proprietorship and work under a different name; e.g. a DBA or "doing business as").
2) Go to your state's department of state website and form the LLC; then apply for a federal tax ID number at the IRS website. You should be able to do it in an afternoon. You will need to pick a name first, for when you set-up/register the LLC.
3) You don't need a separate business license to be a proofreader; just registering the LLC in your state will be enough.
4) To pay taxes biweekly, like from a paycheck, you'll have to have the LLC pay you a salary and then withhold from it. This is legal, but will involve extra costs, either in time (I have tried running my own payroll and takes a lot longer than you'd think) or money (if you hire a payroll processor, like ADP, to do it for you). Best is to just pay quarterly estimated taxes: you can find forms and easier instructions on the IRS website.


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