Newbie needs some advice for small LLC

[BIOSMonkey]

Hi,
I want to start a small business in Georgia providing
photography/retouching/restoration services. Essentially it started as a hobby,
and as a business it will begin with just a few word-of-mouth clients but may
grow over the years to a full-time venture (I have a career in software
development).

Right now, all I have is a business license, but my business is not officially
"open". I want to form an LLC first to separate personal and business
liability, and get a unique tax ID.

The bad part is that I know nothing about business, accounting or taxes, so here
is where my ignorance gets a little embarassing.

I went to the IRS site to get a tax ID, and found that Ga was one of two state
where you could register your business and get a tax ID in one step. So I went
to the Ga site and filled out the information (and answered some questions that
I was not entirely clear on, but did so to the best of my ability). One thing
that confused me was that it asked what type of registration this was...state
tax or withholding. I answered state tax, assuming that this type of
registration was needed in order to collect it from customers, and withholding
was if I had employees (which of course I don't). The last step was to sign a
document and fax it but I have not done this yet. I am not sure if I should do
so or wait until the LLC papers are filed?

More questions:

1) Do I have any IRS/state tax obligations at this point since I am not
officially "open" for business? Are there any forms/reports I need to file for
tax purposes until I actually open and start charging customers?

2) As the owner, am I considered an employee and therefore need to withhold
something for federal/state? What about Social Security?

3) I assume that I do indeed need to collect Ga sales tax? I had read on the Ga
site that single proprietors "generally don't need to register". Does that mean
a single proprietorship doesn't need to collect state tax?

4) Here is a really dumb question (well I guess a lot of these are dumb) but I
don't quite get the difference between state tax and sales tax? Is sales tax
the same as a local tax? For example, depending on what area you go to you may
pay 6% or 7% sales tax on things you buy. Is this state tax, or are there three
different taxes I need to collect (fed, state, and local sales)?

5) How do you calculate how much to withhold from income for taxes?

6) How are tax payments made? Do I just collect payments over the year, keeping
out my part and the tax man's part, and then pay it all on my return? How is
local sales tax paid (assuming it is separate)?

[Wayne Sallee]

Post by BIOSMonkey
I want to start a small business in Georgia providing
photography/retouching/restoration services. Essentially it started as a hobby,
and as a business it will begin with just a few word-of-mouth clients but may
grow over the years to a full-time venture (I have a career in software
development).
Right now, all I have is a business license, but my business is not officially
"open". I want to form an LLC first to separate personal and business
liability, and get a unique tax ID.
The bad part is that I know nothing about business, accounting or taxes, so here
is where my ignorance gets a little embarassing.

You will need a state occupational licence, posibly a
county occupational licence, and poibly a city
occupational licences. For each licence, just look in your
phone book in the government phone numbers section, and
call each one, and tell them what you are doing, and ask
them if you need a licence.

Post by BIOSMonkey
I went to the IRS site to get a tax ID, and found that Ga was one of two state
where you could register your business and get a tax ID in one step. So I went
to the Ga site and filled out the information (and answered some questions that
I was not entirely clear on, but did so to the best of my ability). One thing
that confused me was that it asked what type of registration this was...state
tax or withholding. I answered state tax, assuming that this type of
registration was needed in order to collect it from customers, and withholding
was if I had employees (which of course I don't). The last step was to sign a
document and fax it but I have not done this yet. I am not sure if I should do
so or wait until the LLC papers are filed?
1) Do I have any IRS/state tax obligations at this point since I am not
officially "open" for business? Are there any forms/reports I need to file for
tax purposes until I actually open and start charging customers?

If you are not making a profit, you don't have to file.

Post by BIOSMonkey
2) As the owner, am I considered an employee and therefore need to withhold
something for federal/state? What about Social Security?

Yes, it's done a little differently, but yes. That of
course would be on your icome, not gross sales.

See http://www.irs.gov/businesses/small/index.html

Post by BIOSMonkey
3) I assume that I do indeed need to collect Ga sales tax? I had read on the Ga
site that single proprietors "generally don't need to register". Does that mean
a single proprietorship doesn't need to collect state tax?

Usualy that's called sole proprietorship. That's strange
that you would not have to register, each state is
different. You can always call the state and ask them.

Post by BIOSMonkey
4) Here is a really dumb question (well I guess a lot of these are dumb) but I
don't quite get the difference between state tax and sales tax? Is sales tax
the same as a local tax? For example, depending on what area you go to you may
pay 6% or 7% sales tax on things you buy. Is this state tax, or are there three
different taxes I need to collect (fed, state, and local sales)?

The sales tax is with the state, and sometimes also with
the county. Here in florida it's a 6% sales tax, and here
in lake county there is an additional 1% sales tax. In my
case, it is all handled with the state, instead of having
to fill out sales tax to the state, and then sales tax to
the county.

Post by BIOSMonkey
5) How do you calculate how much to withhold from income for taxes?

They give you forms to fill out. Right now your small so
it's no big thing. They are not going to shut you down
because you were not aware of something.

Post by BIOSMonkey
6) How are tax payments made? Do I just collect payments over the year, keeping
out my part and the tax man's part, and then pay it all on my return? How is
local sales tax paid (assuming it is separate)?

Right now your small, so your state might only have you
file once a year, or once a quarter, eventualy as your
build your bussiness, it would most likely be once a
month. Every state is different.
It all may seem overwelming, but the above issues are the
least of your worries. It's a lot simpler than you think,
though it does get old :-)

All you need to do is start calling the different
governments, and asking questions. An you will have it all
together in no time.

Wayne Sallee
Wayne's Pets
***@WaynesPets.com

[John A. Weeks III]

Post by BIOSMonkey
I want to start a small business in Georgia providing
photography/retouching/restoration services. Essentially it started as a hobby,
and as a business it will begin with just a few word-of-mouth clients but may
grow over the years to a full-time venture (I have a career in software
development).

Funny how people wouldn't consider doing open heart surgery on
themselves, but they will dive right into a subject like business
without having a clue. This is one area where an evening or two
spent reading some books, or 2 or 3 hours spent with an accountant
would really help you out with the details.

Post by BIOSMonkey
Right now, all I have is a business license, but my business is not officially
"open". I want to form an LLC first to separate personal and business
liability, and get a unique tax ID.

There is no concept of a business being "officially" open or closed.
Anytime you are seeking a profit, you are in business. The work of
setting up a business is part of the business. You are in business
now by the mere fact that you are taking these steps, and it sounds
like you have been in business for quite some time because you said
you have "word of mouth clients".

Post by BIOSMonkey
The bad part is that I know nothing about business, accounting or taxes, so here
is where my ignorance gets a little embarassing.

See above. Check out Amazon.com and Nolo Press.

Post by BIOSMonkey
I went to the IRS site to get a tax ID, and found that Ga was one of two state
where you could register your business and get a tax ID in one step. So I went
to the Ga site and filled out the information (and answered some questions that
I was not entirely clear on, but did so to the best of my ability). One thing
that confused me was that it asked what type of registration this was...state
tax or withholding. I answered state tax, assuming that this type of
registration was needed in order to collect it from customers, and withholding
was if I had employees (which of course I don't). The last step was to sign a
document and fax it but I have not done this yet. I am not sure if I should do
so or wait until the LLC papers are filed?

First off, you may have no need to register. What registering gives you
is the ability to use a business name that is not part of your name. In
your case, with photography, you are the business, so it might be dumb
to use a business name that is not your name. For example, Joe Blow
Plumbing does not have to register, but Southside Plumbing would have to.
Note, this varies by state.

Second, a Federal tax ID number (TIN or EIN) is not likely needed since
you only need that to report withholding taxes on employees. If you have
no employees, then no need for that. With a sole proprietorship, you
can use your social security number in place of the TIN or EIN.

Next, an LLC sounds like overkill. If this is a one person business,
then the sole propritorship might be better suited. This is a case of
having the right size hammer to do the job. With a standard business
(sole propritorship), all you have to do is a schedule C on your regular
taxes, and send in quarterly estimates in some cases. With an LLC, you
are doing taxes for an entire new organization. You will end up spending
lots of time or paying an accountant to do all these extra taxes.

Post by BIOSMonkey
1) Do I have any IRS/state tax obligations at this point since I am not
officially "open" for business? Are there any forms/reports I need to file for
tax purposes until I actually open and start charging customers?

You are officially open for business the first time you offer to do
work in exchange for money. Since you have customers already, you
have been in business for quite some time. You certainly do have
tax obligations. For federal, you do a Schedule C. I have no idea
how your state does it.

Post by BIOSMonkey
2) As the owner, am I considered an employee and therefore need to withhold
something for federal/state? What about Social Security?

That depends on what form of business you have. Currently, you have a
sole proprietorship since you haven't filed for anything else. With a
sole proprietorship, you do a schedule C for taxes. There is no concept
of being an employee in that case. If you make a lot of money doing
this, then you may have to mail in quarterly tax estimates.

Post by BIOSMonkey
3) I assume that I do indeed need to collect Ga sales tax? I had read on the Ga
site that single proprietors "generally don't need to register". Does that mean
a single proprietorship doesn't need to collect state tax?

Sales tax has nothing to do with your form of business. It has to do
with selling product. If you sell product, and it goes to an end user,
and it is within your state, then you likely have to collect sales
tax. Labor and consulting normally do not have tax, but that might
vary in your state. Sales tax is normally done by your local city
our county.

Post by BIOSMonkey
4) Here is a really dumb question (well I guess a lot of these are dumb) but I
don't quite get the difference between state tax and sales tax? Is sales tax
the same as a local tax? For example, depending on what area you go to you may
pay 6% or 7% sales tax on things you buy. Is this state tax, or are there three
different taxes I need to collect (fed, state, and local sales)?

By state tax, you likely mean state income tax. That is a percentage
of your annual income, which will include your profit from the business.
That is similar to federal income tax.

Sales tax is a percentage on product sold. That usually is collected
by your local city, and they divide it up among all the taxing agencies
in your area. For example, we have a 6% state sales tax, and 1/2%
county sales tax. Some areas here also have a 1/2% sports area tax,
and 1/2% downtown convention center tax. You just need to know the
total rate for your location, who to send it to, and when.

Post by BIOSMonkey
5) How do you calculate how much to withhold from income for taxes?

Given that there are fines and penalties for getting it wrong, your
best bet is to have your accountant do that. If you want to wing it,
figure your profit (income less expenses), and divide by 16. Send that
amount to the IRS each quarter. You may have to do something similar
for your state.

Post by BIOSMonkey
6) How are tax payments made? Do I just collect payments over the year, keeping
out my part and the tax man's part, and then pay it all on my return? How is
local sales tax paid (assuming it is separate)?

For sales tax, you need to talk to the city, county, or who ever is in
charge of sales tax for your location. They will have all of that
information. Sales tax has strict due dates, and those dates vary by
how much tax you collect. You might have to pay only ever 90 days.
If you are late by even an hour, there are big fines. Sales tax has
nothing to do with income tax, so it does not go on a tax return.

-john-

[BIOSMonkey]

Post by John A. Weeks III
Funny how people wouldn't consider doing open heart surgery on
themselves, but they will dive right into a subject like business
without having a clue. This is one area where an evening or two
spent reading some books, or 2 or 3 hours spent with an accountant
would really help you out with the details.

Or, I could go on the newsgroups and ask questions from people who I assume are
in or have been in the same boat as me. Same research, different medium. No
need to be condescending.

Post by John A. Weeks III
There is no concept of a business being "officially" open or closed.
Anytime you are seeking a profit, you are in business. The work of
setting up a business is part of the business. You are in business
now by the mere fact that you are taking these steps, and it sounds
like you have been in business for quite some time because you said
you have "word of mouth clients".

I have not collected any money, as I need to build a portfolio of sample work.

Post by John A. Weeks III
First off, you may have no need to register. What registering gives you
is the ability to use a business name that is not part of your name. In
your case, with photography, you are the business, so it might be dumb
to use a business name that is not your name. For example, Joe Blow
Plumbing does not have to register, but Southside Plumbing would have to.
Note, this varies by state.

Well, not entirely dumb since I want the business name to be the same as the
domain name (my initials + photo.com), and the domain name needs to be short and
easy for people to remember. Ever see an ad with a site name you wanted to
check out but then forgot it when you got home? There are a lot of
photographers that follow this convention, though.

Post by John A. Weeks III
Second, a Federal tax ID number (TIN or EIN) is not likely needed since
you only need that to report withholding taxes on employees. If you have
no employees, then no need for that. With a sole proprietorship, you
can use your social security number in place of the TIN or EIN.

When purchasing from suppliers who sell only to businesses, they want your tax
id. I don't want them to have my SS number. That's the only reason.

Post by John A. Weeks III
Next, an LLC sounds like overkill. If this is a one person business,
then the sole propritorship might be better suited. This is a case of
having the right size hammer to do the job. With a standard business
(sole propritorship), all you have to do is a schedule C on your regular
taxes, and send in quarterly estimates in some cases. With an LLC, you
are doing taxes for an entire new organization. You will end up spending
lots of time or paying an accountant to do all these extra taxes.

I will definitely have to research the tax liabliity with an LLC based on what
you say here, but I absolutely want an LLC to separate personal and professional
liability. What if my son spills fruit juice on an antique photo I am
restoring, and I get sued? There have been plenty of cases where photographers
have been sued for breach of contract when film was ruined, or they did not turn
out, especially with events like weddings where you don't get a second chance.

Post by John A. Weeks III
You are officially open for business the first time you offer to do
work in exchange for money. Since you have customers already, you
have been in business for quite some time. You certainly do have
tax obligations. For federal, you do a Schedule C. I have no idea
how your state does it.

It sounds like I don't yet, as I haven't collected money. Even if I had it
would not have been under the business name. Word of mouth really means friends
and family.

Post by John A. Weeks III
Sales tax has nothing to do with your form of business. It has to do
with selling product. If you sell product, and it goes to an end user,
and it is within your state, then you likely have to collect sales
tax. Labor and consulting normally do not have tax, but that might
vary in your state. Sales tax is normally done by your local city
our county.

Since a restored/retouched/photo print is a tangible product that exchanges
hands (after the service/labor) it probably means I do have to collect sales
tax.

Thanks for the info.

[John A. Weeks III]

Post by BIOSMonkey

Post by John A. Weeks III
Funny how people wouldn't consider doing open heart surgery on
themselves, but they will dive right into a subject like business
without having a clue. This is one area where an evening or two
spent reading some books, or 2 or 3 hours spent with an accountant
would really help you out with the details.

Or, I could go on the newsgroups and ask questions from people who I assume are
in or have been in the same boat as me. Same research, different medium. No
need to be condescending.

I am not being condescending. Rather, I am just giving you a little
kick in the butt here. There is more to business that what can fit on
the back of a cracker jack box. Plus laws vary all over the nation,
so no two businesses are exactly alike.

Post by BIOSMonkey

Post by John A. Weeks III
Second, a Federal tax ID number (TIN or EIN) is not likely needed since
you only need that to report withholding taxes on employees. If you have
no employees, then no need for that. With a sole proprietorship, you
can use your social security number in place of the TIN or EIN.

When purchasing from suppliers who sell only to businesses, they want your tax
id. I don't want them to have my SS number. That's the only reason.

OK, that is a Sales Tax Exempt Number. That that does is allow you
to purchase goods for resale without paying tax. If you are the end
user of the materials, then you do pay the sales tax. Suppliers probably
ask that number to make sure that you really are a business since
distributors don't want to sell to individuals.

Post by BIOSMonkey
I will definitely have to research the tax liabliity with an LLC based on what
you say here, but I absolutely want an LLC to separate personal and professional
liability. What if my son spills fruit juice on an antique photo I am
restoring, and I get sued? There have been plenty of cases where photographers
have been sued for breach of contract when film was ruined, or they did not turn
out, especially with events like weddings where you don't get a second chance.

LLC or corporation is not likely going to help you here. First off,
you have to run like a real corporation with officers and an outside
board before you get most of the liability protections. Were anything
to happen, a good lawyer could blow right though your LLC and get at
you and your family.

Second, almost no one is going to do business with you unless you sign
for things personally as well as the business since they want someone
to go after if something goes sour.

Third, when someone makes a mistake, the person making the mistake
can always be held liable. So, if you make a mistake, the business
might avoid being sued, but you will still be sued personally. The
only real protection here is insurance. Lots of it.

Post by BIOSMonkey
Since a restored/retouched/photo print is a tangible product that exchanges
hands (after the service/labor) it probably means I do have to collect sales
tax.

Well, it sounds to me like you are providing a service, not a product.
It is like getting a haircut. Do they charge tax on haircuts where
you live? If not, then I think you will not have to collect tax, at
least not on the retouching work.

-john-

[Wayne Sallee]

Post by John A. Weeks III

Post by BIOSMonkey
Since a restored/retouched/photo print is a tangible product that exchanges
hands (after the service/labor) it probably means I do have to collect sales
tax.

Well, it sounds to me like you are providing a service, not a product.
It is like getting a haircut. Do they charge tax on haircuts where
you live? If not, then I think you will not have to collect tax, at
least not on the retouching work.
-john-

It still would not be a bad idea to get a sales tax
number. If I were him, I would. Here in Florida it does
not cost anything.

Wayne Sallee
Wayne's Pets
***@WaynesPets.com

[Wayne Sallee]

Post by BIOSMonkey
When purchasing from suppliers who sell only to businesses, they want your tax
id. I don't want them to have my SS number. That's the only reason.

What they want is your sales tax number, and sometimes
your bussiness licence. What businesses prefer is for you
to fax a copy over.

Wayne Sallee
Wayne's Pets
***@WaynesPets.com

[m***@jach.hawaii.edu]

John,

Post by John A. Weeks III
For sales tax, you need to talk to the city, county, or who ever is in
charge of sales tax for your location. They will have all of that
information. Sales tax has strict due dates, and those dates vary by
how much tax you collect. You might have to pay only ever 90 days.
If you are late by even an hour, there are big fines. Sales tax has
nothing to do with income tax, so it does not go on a tax return.

It doesn't go on a tax return in the sense of a 1040 (in any way,
shape,
or form), but I would assume that it requires a form to be filed with
it
(I know it does in Hawaii). I would call that a tax return (only a
different
tax return).

(Here in Hawaii businesses as small as mine have the option to
pay excise tax only every 6 months. Worth looking into, it saves
on the paperwork).

BTW I did jump into this without any formal education in the area
myself
too, many years ago. But I did some reading, and I didn't have any
problems
switching from German taxes to US (and Hawaii) taxes. Some time later
I did payroll including the withholding taxes, etc., and still do the
1120S
for our now inactive S-corp (incorporated with lawyer) ...
But the business I'm still in still is a sole proprietorship with a
DBA.

Maren
Tropical seeds - Job's Tears Jewelry - Plants & Lilikoi
http://www.jach.hawaii.edu/~maren/palms_etc/