Preparing for the Legalities and Financial Issues
Now that you have the basic steps to home business success completed, you will need to be fully prepared for the legal and financial responsibilities that accompany a home businesses. According to the Small Business Administration, the Internal Revenue Service "tends to audit home businesses more frequently." This may be a bit nerve wracking to consider, but the fact is that you can make sure that you are not subjected to audit by keeping sufficient records. The final five steps to home business success include:
6. Establishing a name - Home business owners may prefer to have their own company name that helps customers identify them. In most cases most home business owners prefer to have a "DBA" or "doing business as" name for their home based business. Establishing a DBA is not difficult and for most home businesses is more convenient than establishing an S Corporation.
7. Applying for Tax ID - While many home business owners can do business in their own name and also use their personal social security number, some prefer to apply for a Tax ID number or EIN (employer identification number). While this is not required, some home business owners find it useful. Work at home business owners who establish KEOGH plans are required to have an EIN. You should also check with your local Taxation & Revenue Department and ask if you will be required to charge and pay sales taxes for any items or services sold within your state; this is not necessary for sales outside of your state.
8. Record-keeping is critical - When you run a work at home business, record-keeping is critical to success. Home business owners should keep very accurate records of all expenses incurred in the course of doing business. The Internal Revenue Service Publication 334 can help work at home business owners determine what allowable deductions are, but records must be kept year round.
9. Establish a savings account - Those who are considering a home based business should establish a savings account for the "lean" times. Most home based businesses go through spurts of time where they are not generating income sufficient to maintain their living standards. Having a savings account set up for the purpose of having a "rainy day fund" can help ease the financial issues that can occur in slower times.
10. Quarterly tax filings - The final thing to be aware of is that home based business owners must file a quarterly tax return. This form must accompany any payments that are due on earnings during that time. It is also important that those who are self-employed will likely receive annual 1099 forms from companies that have paid them more than $600 for the year. These 1099s are to be filed with your annual tax return.
Work at home success can be achieved for those who have a solid plan for success. Understanding the legalities and preparing thoroughly before starting a work at home business can mean the difference between success and failure. Even those who are not in need of financing would be wise to create a solid business plan. Business plans are not only for financial purposes, they can help a work at home professional gauge what needs to be changed in their business model.