Do i Really Need a Business License and Tax ID?
by Tim Knox
Published on this site: January 25th, 2006 - See
more articles from this month
I've gotten quite a few emails recently from ebusiness owners
who seem to think that just because their business is conducted
online or from the comfort of home that the rules and regulations
that govern brick and mortar businesses do not apply to them.
The ebusiness questions I get most often do not involve building
websites or conducting ecommerce.
They are more what I call the "Do I Really Have To"
line of questions, such as:
"Do I really have to get a business license?"
"Do I really have to get a tax ID number?"
"Do I really have to pay taxes on income from my website?"
Yes, yes, and yes.
Do I really have to get a business license? This is one requirement
that many ebusiness entrepreneurs think they can skirt because
they don't have a brick and mortar establishment
Sorry Charlie. Operating an ebusiness out of your office
or out of your home does not get you off the hook when it
comes to licensing.
Depending on your location you may need a city and county
license.
Luckily, such licenses are relatively easy to obtain and
are not expensive. For local licensing requirements, contact
your city or county government offices.
Home businesses are also subject to zoning laws that regulate
how property can be used and may restrict various activities.
You should check local zoning requirements and property covenants.
You can find this information at the court house or by calling
your local license department.
Legalities aside, the best reason to get a business license
is it allows you to set up a business bank account using what's
called a DBA.
"DBA" stands for "doing business as."
A DBA is another name that you use in the operation of your
business instead of your personal name. For example your name
might be Joe Jones, but you might use "Jones Internet
Services" as your business name. Having a business license
will enable you to set up a business account and get checks
printed with your business name, giving you that all important
air of professionalism that many ebusinesses lack.
Do I really have to get a tax ID number? Online companies
with a physical presence, or nexus, in a state are required
to collect and report taxes on sales of taxable goods made
to customers living within that same state.
For example, if your online business is based in California,
you must collect and report sales tax derived from fellow
Californians making purchases on your site.
For this reason you will be required to have a tax ID number
if you're selling taxable goods (most services are not taxed).
Getting a tax ID number is usually a simple process of filling
out a form and paying a nominal fee. You will file quarterly
reports and remit any sales tax that is due.
One word of warning: many entrepreneurs have gotten themselves
into deep trouble because they saw fit to spend the sales
tax they had collected instead of sending it to Uncle Sam.
This can mean death to your business and jail time for you.
Many times this mistake is innocently made when a business
owner comingles funds collected as sales tax with their normal
business checking account.
Open a separate bank account and deposit sales tax monies
into the account and do not touch it until the time comes
to send the money in with the quarterly report.
Do I really have to pay taxes on income from my website?
We've talked about this before and the answer is still the
same: Just because your income is derived from an ebusiness
does not mean that the income is not taxable.
It's not manna from Heaven. It's income so report it.
The point to remember is this: the "e" on the front
of "e-business" does not stand for "exempt."
In the eyes of the law your ebusiness is susceptible to the
same laws and regulations that govern the corner mom and pop,
so make sure you conduct your business as such.
Tim Knox Entrepreneur, Author, Speaker
http://www.prosperityandprofit.com
http://www.dropshipwholesale.net
http://www.smallbusinessqa.com
http://www.timknox.com
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