Types of Business Entity Structures
Thinking of starting an online business? Here are the tasks to accomplish in order to create a legal business entity to conduct business in the US.
There are 5 business structures to consider, but for most of us starting out, a Sole Proprietorship or Single Member LLC will be the best option.
Every Business Entity in the US should have a Federal Tax EIN.
An Employer Identification Number, is a free classification number offered by the IRS. The number is easily obtained online for immediate use.
Banks often require this number to open business accounts and lines of credit. Freelancers, contractors, and clients will need this number when doing business with you.
Sole Proprietorships, LLC’s and Income Taxes
Sole Proprietors and Single Member LLCs can still file taxes on the individuals 1040 forms. However, you are now considered to be self employed, so you must file Schedule SE (Form 1040) self employment tax.
Depending on the amount of income, the business may also have to file quarterly payments of estimated tax for individuals.
What is a W-9 ?
Serving as a paper trail of expenses paid for services and income received from services the W-9 and 1099 are 2 of the most important tax documents for small business entities and freelancers.
Go ahead and download the W-9 pdf form now, or bookmark this page, it’s a must have!
The W-9 form is titled “Request for Taxpayer Identification Number and states the business entity name, address and Federal Tax ID EIN and should be provided to every client that pays over $400.
What is the purpose of a 1099?
The 1099-Misc form is filed by those clients that paid your business entity over $400 in the filing year. The deadline for filing 1099 forms is January 31.
Since business’ do not pay employment taxes on non employees performing services for their business, the “1099 Misc.” form reports responsibility of employment taxes.
When to exchange W-9 and 1099 Misc forms
Providing a W-9 forms with every new clients service “Welcome Packet” when a new project begins, saves time and confusion at filing time for all parties involved.
As for the 1099 Misc., businesses are required to report all “non-employee compensation payments” by Jan. 31.
Do I need a business bank account as a Sole Proprietor?
No, actually, an individual and a Sole Proprietorship are one in the same for tax and accounting purposes, so most banks will let you deposit checks written to a SP into a personal account. Bank accounts for Sole Proprietors often state:
“Jane Smith DBA Business Name”
Can I change my entity structure later as my business grows?
Yes, You can always file Articles of Incorporation later, changing the way you file taxes as your business grows.