Jumpstarting Your Online Business (Tax-Wise, Anyway)

Posted on July 2, 2017 in Money & Finance

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Q: I will be starting an online gift basket business in a couple of months and have a couple of questions:

  1. Although I will be operating a sole proprietorship business (and I was told that an EIN number is not required for sole proprietorship businesses), I do not want to use my Social Security number. So will I need an EIN number? I would like to know what do I need in order to comply.
  2. I will be collecting sales tax from customers who order from my website, which is based in New York. I will not be opening up a retail store; my business will be conducted by mail order, phone and internet orders only. I would like to know what forms will I need for tax purposes. I will be paid a monthly commission every month.

A: Congratulations on starting a new business!

You can apply for an EIN online, although you will want to confirm your responses to the online questionnaire with your accountant. Here is a link to the IRS.GOV website where you can get information regarding an EIN: http://www.irs.gov/businesses/small/article/0,,id=102767,00.html

In addition, you are correct that you will need to pay sales tax on purchases made through your website. The New York State Department of Taxation and Finance website can provide you with the basic information you need to get acquainted with sales and use taxes. http://www.tax.state.ny.us/nyshome/stidx.htm

[Note that if you, dear reader, are based in another state, your state’s Department of Taxation (or whatever name it uses) should also have this information online].

However, you will definitely want to make sure that you confirm your decisions with your accountant. You will also want to be sure to set up a reminder system to file sales tax returns in a timely fashion. Even if you make no sales, you are required to file a sales tax return. Failure to do so will cost you in penalties.

Finally, you will want to give some thought to the business structure that you are using for this new venture. You referred to a “sole proprietorship,” and that legal form of business carries with it certain risks–most especially, the fact that you are not shielded from personal liability. Assuming it’s not already within your plans to form a corporation or limited liability company, you may want to have a look at my article, “The Top Five Reasons to Avoid Sole Proprietorship,” available at http://www.greatbusinesslawtips.com/businesslaw_soleproprietorship.htm

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