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Austin Texas USA
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Before we get started, the disclaimer. Remember that I am not qualified to give tax or legal advice, but am only sharing my interpretation of the advice I have received, which I believe is legal and honorable, and applies to others as well as me.
If you a crafts person who wants to sell what you produce, and are not trying to build a growing business, then you are better served by my page on business structure for a solo craftsperson, such as myself. This web site, and that advice, is often associated with a retired person or someone approaching retirement, who does not want to build a growing business. For my younger friends, who are starting a business that you hope will grow and support you and your family, there may be other web sites that are better, but since you are here, these are some suggestions for a growing business.
Many people feel more comfortable dealing with an established business than an individual, especially a relatively young individual. Therefore you may want to establish a business identity early on. Instead of doing business as "John Doe" (as I recommend for a solo business) you may want to do business as "Doe and Associates, Inc." You could do business as "Doe Custom Tables" but if you are planning on being around a while, and want to build a reputation and growing line of products, you may want to do business as "Doe Custom Furniture" rather than just tables. Think carefully about the current and future value of the name... you can change it, but if you change, you lose the reputation you built, so invest thought in getting it right the first time.
Before you make your final choice of names, spend time on Google. A lot of time. Does someone else have a similar name. Could your name be mistaken for a less honorable business? What about singular and plural (One of my vendors is "Veneer Supplies" but there is also an unrelated "Veneer Supply" that I go to far too often). You are on the site "SoloWoodworker.com" but there is also a "SoloWoodworking.com" and they don't respond to emails (which means we can't put a link on each other's site... "Were you trying to reach...)"
Once you have picked a name, try to use the same name for everything. If you will have a web site, be sure "DoeCustomFurniture.com" is available - change to "Doe Furniture Makers" or something else if necessary to have the same name on your web site as on your bank account and email and business card and truck.
Once you start using a different name than on your birth certificate, you are doing business under an assumed name, commonly called a "DBA." That requires you to file a legal document to identify who (individual, partnership, or corporation) is behind that assumed name. If you change your name even slightly - for example, "Johnny Doe" rather than "John Doe" you need to file that DBA paperwork. Your bank will probably require the DBA paperwork before they open an account for "Doe Custom Furniture" or whatever.
Once you have filed the DBA paperwork, the state and local government will recognize you as a business. If there are separate taxes on business or business property, they will be coming to see you. You may have to pay a franchise tax for the honor of having a business. You may have to pay property tax on equipment and inventory owned by the business. If you have created a "normal" corporation the corporation will have to pay taxes on the corporate profits, and then you will have to pay taxes again on those profits when you draw money from the corporation. A small corporation can be established as a "chapter S" corporate entity, where the owners take all the profits, so there are no profits left on which the corporation pays taxes... all the profits appear on your personal income taxes (so are only taxed once). Your corporation will still have to file a tax return, even if there are no taxes due. Establishing your corporation as a "S Corp" is something you do in advance, not an option after you discover the tax bill. There are other types of business entities besides regular and type S corporations, but those are beyond the scope of this web page.
If you are a business entity that grows and has employees, then it may be wise to have a business structure to isolate your personal assets from the business assets. Yes, more paperwork and taxes. But if I mess up as a solo craftsman, the lawyers can probably figure out who messed up, and come after me even if I have a corporation. But if you have a group of employees, it is not obvious who messed up, so the liability goes to the corporation. A lawsuit may take all the assets of a corporation, but generally they will not have access to your personal savings.
This site (layout and contents) is ©2008-2023 by Charles A. Plesums. The material is free for personal use. Questions? contact us.