Getting started with business transactions and taxes

[robert pope]

Hi all, New to the forum, with hopefully a simple question you have experience with.
I've been searching for what to do, but I guess I don't quite know what to search for. If this has already been posted or the answers are online, feel free to just redirect me there.

I'm planning on beginning to sell electronic kits soon, but not to individuals, rather to business which will act as distributors.

My questions are these-

Do I need to licence myself as a sole proprietorship to do this?
Is it possible to make these interactions as an individual?
Is it a tax-free hobby if you make less than a certain cutoff?
Do I need to claim all transactions on taxes?
How should money be transferred? Paypal?

I just want to make sure I do everything legally, and that I won't be getting in trouble when tax season rolls around.

Thanks for any advice or help you can give me!!
Rob

[Business Attorney]

Hi Rob, welcome to the forum.

Do I need to licence myself as a sole proprietorship to do this? What do you mean by licensing? If you mean a business license, generally that is a local (city or county) issue and is not based on whether the business is a sole proprietor, partnership, LLC or corporation. It is just based on whether it is a type of business that requires a license. If you mean registering the proprietorship as an entity the way that a corporation or LLC is filed with the state, then the answer is no. There are no formal formation requirements for a sole proprietorship. A sole proprietorship is just the individual who owns it. On the other hand, if the individual is running the sole proprietorship under a name other than his own name (e.g., Pope Electronics rather than Robert Pope) then the owner does have to register the assumed name or DBA.

Is it possible to make these interactions as an individual? Yes. See above.

Is it a tax-free hobby if you make less than a certain cutoff? Income from any source is taxable. If your revenues exceed your expenses by even one dollar, that dollar is taxable.

Do I need to claim all transactions on taxes? Only if your revenues exceed your expenses. If your expenses exceed your revenues, there is no income to report. If your expenses only occasionally exceed your income, you may be able to deduct the losses for those years. If your your expenses generally exceed your income, then the losses will probably be disallowed as "hobby losses."

How should money be transferred? Paypal? Paypal is certainly one good way to collect funds. If your activity justifies it, you may want to get a merchant account and take credit cards directly. You need to compare the various fees based on your own level of activity.

[robert pope]

Thank you, you helped me make sense of that, if i understand correctly, it is not the fact that you are doing business that needs registered, just the name if you choose one :)

So for claiming the income on taxes, one simply keeps track of it and than files it as income on the tax forms?

[Business Attorney]

Thank you, you helped me make sense of that, if i understand correctly, it is not the fact that you are doing business that needs registered, just the name if you choose one :)

Not exactly. The two issues are independent. A business may need a license, but that is rarely if ever based on the form of the entity (corporation, LLC or sole proprietorship). The licensing requirement is based on what types of businesses need to be registered under local law. Some businesses need even more than one license. For example, a restaurant will often need both a restaurant license and, if it serves alcoholic beverages, a liquor license. If it has gaming activities, it may need a gaming license. Some localities require licenses for even home-based businesses that do not have employees or customers in the home, though in my experience most do not. Registering the entity (a corporation or LLC) with the state or registering the name of a sole proprietorship as a DBA are entirely different requirements.


So for claiming the income on taxes, one simply keeps track of it and than files it as income on the tax forms?

That's pretty much it. In the case of a sole proprietorship, the income and expenses are reported directly on your personal Form 1040 on a Schedule C.

[tallen]

You should create a separate bank account dedicated to all of your business transactions. Pay all business expenses from that account, and deposit all revenues received from the business into that account. Having a dedicated bank account will help you to better keep track of the expenses and income from your business activity, so you will be better prepared when it comes time to do your tax returns.

[Jim Tate]

Hello Robert,

I would like to introduce myself. My name is Jim Tate; I’ve been in the merchant service industry for thirteen years. What I hear from my customers is that it PayPal took as long as 7 days for their PayPal transaction to deposit into their checking account. And when it came to service the only way to contact them is by e-mail, a big disadvantage if you need answers right away.
I offer competitive rates no application fee, no early termination fee, as well as free QuickBooks Pro Twenty Thirteen and the ability to have all your transactions instantly uploaded into QuickBooks.
Making accepting credit cards and book keeping a breeze.


-Jim Tate