I've run this computer repair business from my home on the outskirts of town as a side job for two years now (have a small homemade sign in the lawn). I am not registered as a business and only bring in $5,000 in sales, but will be getting serious about advertising and expect $10,000+ next year.
The question is, how should I go forward? My goal is to keep margins as large as possible while keeping prices low. This means I don't want a bunch of legal and accounting fees.
How can I best do this?
Thanks a bunch for any and all insight!
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Answers & Comments
Verified answer
Running any sort of business and applying for an EIN number go hand-in-hand. If this is just a hobby, you can report the income on Schedule C of your income tax return with or without an EIN.
The next "step up" would be reporting as a sole-proprietorship without becoming an LLC or S-Corp. Now, especially if this is a major/only source of income, you should apply for an EIN and get a checking account in the business' name using that EIN, and run all of your income and expenses through said checking account. You can still file a Schedule C using the EIN you receive.
The next "step up" may be the most important one - incorporating as an LLC or S-Corp. This removes the legal liability and audit risk associated with filing a Schedule C year after year. It will allow your business to be recognized as a separate entity from yourself, and you will not be personally liable if the business ever goes sour. The "downside" is corporate business taxes due to your state (the amounts - if any - depend on your state) and having to file different tax forms, like a 1065 or 1120-S, in addition to your 1040, but the lower taxes, much lower legal liability, and MUCH lower audit risk well outweigh the "downside" of filing additional returns and paying to get these done.
The size and nature of your business will dicate what type of entity you should form, and a reputable accounting firm can advise you on this properly after analyzing your records. Even if this professional service costs you money, the money they can save you in taxes is often worth it....a tax projection for a couple hundred dollars and incorporating as the right type of entity will usually save thousands in taxes.
You're already a sole proprietor and since you're in a low-risk business there's nothing to be gained with an LLC or any type of corporation. Keep it simple and you'll do fine.
Forming an LLC or Corp won't affect the odds of an audit as another respondent claims and the liability protection of either is highly overrated. You can always be sued for personal liability and an LLC or Corp wouldn't shield you at all. A good general liability insurance policy would provide better protection and probably be cheaper in the long run.
I would get an EIN even though you don't strictly need it if you don't have any employees. You can use it instead of your SSN when your customers require a W-9 from you. A compromised SSN is a major nightmare but a compromised EIN is relatively easy to replace.
you can go to the irs website
or
www.quickein.com ang get a ein for 19.95