Question by goarmysports: Do I have to incorporate my new business?
I am opening up a new online business and I live in the state of New York. What do you recommend as far as choosing “inc” or “corporate”? Also what risks do I run if I open up my business before my name is official?
Answer by Brad
You can have three options:
I live in Canada so the rules are different, but the basics are the same. An incorporated business is an independent entity. In other words it is view as a person like you or me. For this reason you are taxed twice. The incorporated business has to pay taxed on all its profits and you have to pay taxes on the money the incorporated business pays you. The advantage of being incorporated is something called limited liability. This means that if you screw up (e.g. burn someone’s house down while cleaning it) and someone wants to sue, the can only sue the company and not you—as long as you are acting as an employee/contractor of the company. This means you won’t lose you house or other personal positions, but anything the corporation owns if fair game. But since you’re operating and online business, I don’t think you have to worry about this unless you selling something that’s potentially risky.
If you’re not operating a risky business you can open a sole proprietorship. This type of business is a lot less confusing to operate and you only get taxed once. You just claim your income minus expenses.
But, I just recommend you start your online business and see how things go. You don’t need a business name. Just claim your income as personal. I also believe there’s some form Americans need for online businesses. It’s called a W9 form or something like that. I can look into if you want.
I register my domain names at GoDaddy.com. Open up a separate account for you business and deposit all you earnings into that account. I recommend PayPal.com to do this. Money is deposited directly into your account, and they’ll accept credit card payments for you. At the end of the year you’ll know exactly what you earned. Keep all you receipts (expenses) for money spent on the business and minus it off your earnings and claim the remainder as income. You don’t need a business to do this.
If you start promoting a business name and someone else owns it, you’ll be facing legal issues if you get caught. Plus it’s illegal to promote a non-registered business. In Canada they do something called a NUANS search for $ 60. Basically you tell them the name you want and they check the database of business names to see if it’s available. If it is available, it’s all yours.
Hope this helps.
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