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Question from reader: In the near future I will be starting a business at home. If I plan on naming this business do I have to get a business license or can I treat this as other income when tax time comes around. Are there business taxes applied? Since I'm the only person that is going to do the work can you advise me as to what legal steps I have to make?

Answer from Brett Krkosska: Making Your Home Business Legal
Here the areas you need to address: Register Your Business Name Your business name must be registered if it is something other than your full legal name. This is a way of informing the public that you will be doing business as (DBA) an assumed, or "fictitious" name. Some states require a notice be published in the local newspaper. The details of registering varies from state to state, so check with your state office or county clerk for specifics.

License Your Business

Licensing of your business depends on the type of business you plan to start. Licensing occurs on the state and/or local level. Federal licensing is only necessary for businesses who engage in specific, controlled activities (things such as making firearms, alcohol, tobacco, etc.). Many cities, but not all, require a general business license, plus there may be a license required for your particular business type. You should contact your state and city clerk offices to find out what licenses you need.

Income Tax

You are responsible for filing and paying income taxes on your business. Because your business is a sole proprietorship, you will pay income tax on your net profits. You report your income tax using Form 1040 at tax time, with the additional requirement of filing Schedule C or C-EZ: Profit or Loss From Business. You can get IRS Publication 334 (Tax Guide for Small Business) for more information. You can access the IRS online for information and documents at:
http://www.irs.ustreas.gov

Estimated Tax

If you expect to owe more than $1,000 in federal taxes, you need to make estimated payments quarterly. This may seem like a burden at first, but it actually protects you from having a big payment due at tax time. You can learn more about this from IRS Publication 505: Estimated Tax Payments.

Self-Employment Tax

A home business must pay self-employment tax on income over $400 using Schedule SE. Why? Because you are required to pay your fair share into Social Security and Medicare. Oh joy!

State Sales Tax

Contact your state treasury office for information on obtaining a sales tax certificate for goods sold. If your product is to be sold wholesale, or if you are buying materials wholesale, inquire about a resale certificate to avoid paying taxes twice.

Zoning

Be sure to check with your city and county offices about zoning regulations for your home business. You don't want to be in the position of having to shut down later because of zoning violations.

» For more coverage on this subject please read 9 Steps To Legally Setting Up Your New Business


ADDITIONAL RESOURCES

Small Business Administration
The SBA (Small Business Administration) is a good place to learn more about the nuts and bolts of legally operating a small business. You'll find them online at:
http://www.sba.gov

Your Local SBA
If you want to get specific information about licensing and taxes in your area, you can contact your local SBA office. This office can answer many, if not all of your questions about doing business locally. You can locate your regional office at:
http://www.sba.gov/regions/states.html

Service Corps of Retired Executives (SCORE)
Retired executives from all walks in business provide personalized and free counseling to assist you in making the right decisions for your business.
http://www.score.org/

Business Plan Outline
http://www.sba.gov/starting_business/planning/basic.html

Small Business Startup Kit
http://www.sba.gov/starting_business/startup/guide.html

Most home businesses fall into the category of sole proprietorship. The areas covered above addresses legal and tax issues common to most home businesses of this type. However, no two businesses are alike, and it's not a bad idea to consult with a lawyer and accountant for additional information. Doing so may prove valuable for you, both before startup and later on as your business becomes more complex.

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