Starting a Home Business : Understand Your Registration Obligations
By Angela Sanders Monday, December 23, 2013, 11:37 PM EST
Running a business can mean working long hours, wearing many hats and be responsible for all of the obligations of the company. Those obligations include home business registration. Considered to be one of the more frustrating aspects of being an entrepreneur, registering a home business is essential if a business entity is to be established. Not registering a home business may lead to several legal consequences.
As most home businesses are sole proprietorships, state registration for the business may not be necessary. However, it’s important to check with the state to make sure this is the case. Even if a home business doesn’t need to be registered at the state level, an owner can receive valuable direction so that the necessary steps can be taken in a timely manner. Should state registration be required, the business division of the Secretary of State web site will be the location where a home business can file with the state.
Registering Under a Given Name
The sole proprietor will register their business under their own name. However, business can be conducted under a different name. If a company wishes to do this, a DBA or ‘doing business as’ registration may need to be completed and submitted. Some organizations for small businesses will offer a chart to businesses that are unsure about the business registration requirements for their state.
Zoning, Permits and Licenses
Although most home businesses won’t require an adherence to local zoning laws, there are some that should be taken into consideration. These include whether or not having a business in the home will require renovations or modifications to one or more areas of the home. They also refer to whether or not staff or clients visit the place of business, and how often, and whether or not a business is creating negative effects for the neighborhood, such as when a company owner stores inventory on their home’s front lawn.
The best way to learn about zoning requirements when home businesses are concerned is to consult the offices designated for the city or county in which the business is being operated. The zoning department may also be a good place to visit if application for any special permits is required.
Special permits that may be required can include a health permit if a company owner is handling food, an occupational permit and even tax permits and licenses which are considered to be general in nature.
Obtaining the FEIN, Or Tax ID Number
All businesses are required to have a tax ID number so that taxes can be paid on the state, local and federal level. To do this, registration with the IRS is required, in addition to registering with local agencies.
However, in many cases, a sole proprietor will not need to register for the FEIN, simply because a social security number is usually all that’s required. But considering the fact that registering for an FEIN number is free of charge, it may offer a home business owner more security to register for the latter, as it reduces the exposure of the SSN. As well, having a tax ID number may expedite the process of applying for business bank accounts, as it can offer a higher degree of legitimacy.
The payment of business taxes has become much simpler thanks to electronic communication. Home businesses can pay all required taxed to state and federal entities by registering for electronic filing and payment of taxes, or EFTS. This may be best to do as early in the business registration process as possible, simply because it takes a few weeks to receive a password once registration has been submitted.
Determining Sales Tax
One major consideration for many home businesses is whether or not the charging of sales tax is a legal requirement. This will be determined by the products and services that a particular state has deemed are taxable.
One myth about sales tax is that business owners who sell services as opposed to product do not need to charge sales tax. This is not always true. There are some services for which business owners must charge sales tax. Generally-speaking, sales tax must be charged on any services or goods sold within the state a company does business. And contrary to popular belief, the remittance of sales tax is not due when a client makes a payment, but as soon as the product is given or a service is rendered to the customer.
For home businesses that operate exclusively online, a 1992 decision by the Supreme Court, called the Quill Decision states that sales taxes need not be charged unless that business also has a physical storefront located in their state of registration. However, due to the fact that some states are attempting to have legislation passed that requires taxes to be remitted by online businesses, checking with the Department of Revenue for the state in which a company is doing business may be a good idea.