July 26, 2008

Do I need a Business License?

Filed under: Uncategorized — by serendipper @ 5:08 pm

This question came up in a community I’m in, and here’s my answer.

There is a lot of confusion around the term business license and what you need to legally run a business.

The most important piece of paper to get it a resale tax certificate. It means that you will be collecting state sales tax for each item that you sell and filing quarterly tax returns. (In Texas you can accomplish all of this online – it’s very easy.) This also means that you will not have to pay sales tax on any supplies you purchase in the state. It can also get you wholesale prices with some suppliers. If you are selling at craft shows and home parties you had better get one. In Texas if you sell an item online to someone who resides in Texas, you must collect sales tax as well. Go to your state’s website and look up sales tax for their regulations.

A business license is usually only required if you have named your business something other than your given name. If you are calling yourself “Jane Doe’s Jewelry” you don’t need one. A license is usually cheap to get. You register your business name as a “DBA” – doing business as. It is meant to protect the consumer. Registering your DBA also keeps other people from taking your business name.

An EIN is an employer identification number and is federal. It is not necessary unless you have employees or unless you are registering your business as an LLP, LLC, or corporation, which you probably are not going to do.

Federal income tax: Read what the IRS says here http://www.irs.gov/newsroom/article/0,,id=172833,00.html and decide for yourself whether what your are doing now is a hobby or business. I myself just added any art and jewelry sales to “other income” on my tax return for years. Then I became more serious and for the last 5 years I have been filing the schedule C for business.

There are several books out there devoted to the business of crafting that you can read for more information. Also don’t google aimlessly, go to your state’s official website and look up how to run a business in your state. Or call your county tax office for more information.

Good luck and don’t get too freaked out. Just make sure you’re doing the right thing so the tax man doesn’t get ya!

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