Starting up a new small business, whether it’s a one person home-based business, or one with significant start-up costs requiring a business loan and a professional business plan, can be confusing.
Fortunately, almost any business decision you make can be corrected later, even if it does end up taking more effort than you would like.
A professional writing business requires some important start-up documents as part of a solid business plan.
Writing Business Tax ID Number
Any client or other employer who pays you more than $400 in a single tax-year has to report that payment to the IRS. Don’t expect legitimate companies to work with you “under the table.” To report taxable payments like these, your clients will need you to fill out a Form W-9, Request for Taxpayer Identification Number and Certification.
As a small business entrepreneur you have the choice of using either your Social Security Number or a business Tax Identification Number on your W-9.
It should be painfully obvious which way you want to go, especially when working with online clients you have never met before.
In order to get a tax ID number, or EIN (formerly known as FEIN), you have to register your business with the IRS. It is a simple process that involves filling out an online form from the official IRS website.
If you are going to take the time to fill out a couple of forms, why not get the extra liability protection offered by being an LLC at the same time?
LLC Writing Business Corporate Structure
Almost all new writing businesses should be structured as a Limited Liability Company, or LLC for one really important reason.
Creating an LLC is almost as easy as getting an EIN taxpayer number.To do so, just go to the official state government website for where you reside.
Most state websites have a prominent link for Businesses, or for the Secretary of State. You’ll find the forms you need to register as an LLC there. If your state’s LLC Articles of Incorporation require you to enter a taxpayer identification number, make sure to stop filling out that form, and go get your EIN from the IRS first. Many official business documents filed with the state are public record, and you don’t want your SSN out there.
Most states allow you to register LLC online right on the website. There is usually a small processing fee ranging from $25 to $100, but that is a small price to pay for the benefits of an LLC.
Once you have filled out your LLC registration, then proceed to the IRS website and get your business tax ID number. Remember, that it will called an EIN, or Employer Identification Number, on the IRS website. It doesn’t matter whether you do or do not have employees, you need the same EIN number.
The complicated part of getting an EIN is choosing how your business will be taxed. While this may seem complicated, it really isn’t.
The IRS doesn’t have any rules or regulations for taxing LLCs. Instead, it just has LLC companies use the existing tax regulations for either sole proprietorship or partnership. This choice does NOT impact how your LLC is treated for liability purposes, this is for business taxation only.
Thus, if you have a FORMAL partnership agreement where you share profits (and tax liability) with one or more other people, then choose Partnership. If not, choose Sole Proprietor. That’s it. Easy, right?
You’ll have to check a similar box on the W9 forms that your clients will require. Whatever the answer was when you filled out your EIN form, make sure you always use the same answer on your W-9 form as well.
A quick note about business partners who are spouses. Under current tax law, a husband and wife partnership can be treated as a single unit, meaning that if you and your spouse run the writing business together, you can still choose to be taxed as a sole proprietorship.
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