Time and again, online business owners tend to put off dealing with taxes and going legit. But there are many reasons that it is a colossal mistake and added stress is just a small reason why it’s important not to drag your feet about going legit.
- You Probably Owe More Than You Think – One of the things that trips up new business owners is how much they really owe in taxes. When you have a small business, you are responsible for self-employment taxes, which is the half of the payroll tax that an employer typically pays. Plus, taxes are pay as you go so, you’ll get fined if you owe more than 1000 and did not pay it quarterly as directed.
- You Cannot Deduct Hobby Expenses Since 2017 – When the tax law was rewritten, they took out the ability to deduct hobby expenses. Many people may be unaware of that fact, but as of today, while you must declare all hobby income, you cannot deduct the cost of making that income as a hobby.
- If You Don’t Keep Track of Income and Expenses, How Do You Know You Are Succeeding? – One of the ways you can decide what is working and what is not working is to keep track of your income and expenses. When you track an expense directly to a specific product, you can know if you’re profitable or not.
- You Could Lose Your Payment Processor Accounts – If you’re using your PayPal account to get paid without setting up a business account, it could cause issues for you later, and they could shut down your account.
- If You Get Sued, Your Family Will Suffer – If your business is not legal, you may be putting your family in danger from a lawsuit or other issues. As a person doing business without any license, insurance, or legality, the courts will not take your side.
- You Can Deduct Start-Up Expenses – The first year you start your business, you can deduct a lot more things than you can after you startup. Keep in mind that if you have been running your business for a while without going legal, you may need to decide to say that you just started rather than say you started a year ago to avoid fines. However, it’s up to you as you can actually redo your taxes from last year to get it right.
- Avoid Trademark & Copyright Issues – Your lawyer can help you avoid any issues of committing any of these costly infractions regarding trademarks and copyrights. Plus, they can protect your trademarks and copyright if an issue arises.
- Get a Tax ID – Obtaining a tax ID called an EIN (employer identification number) from the IRS can help legitimize your business as well as help you avoid your personal information being stolen for purposes of stealing your identity. You don’t need to be an employer to get the number.
- Comply with the Law – You may not realize this, but it’s illegal to run a business that is not registered - most notably when you are using a name other than your legal name. Also, even if you’re only using your computer to do business at home, some areas make it a finable infraction if you don’t have a license.
The thing is, it’s all much scarier when it’s unknown. Once you have everything set up the right way, you’ll be glad that you did. You’ll be able to focus on making money instead of getting caught doing something illegal. Now don’t get too worried - it’s only a fine if you are caught, but even just a fine can be a stressful event that can be avoided.
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