Business question.(Long)

[rhino400]

I know this is a gun forum but I figured I would ask anyway. After my summer job is over I will be returning to college this fall as a full-time student. I am going for a degree in computers. So here is my question. I want to do a computer repair service on the side to make a little money. I know I am fully capable of doing the work. Do you think I would have to make it an official business like an LLC and get insurance? I know insurance is recommended in case I blow someone’s computer up. But do I have to make it an official business? Like buy a business license and everything. Because if I had to do that it would throw a wrench into my plans. Any advice would be helpful.

 

[bigus_D]

I don't believe a business license would be required. If you are providing consulting services you can do business under your own name. Setting up an LLC is a good idea as it can (if done correctly) limit your liability (hence the name)... but this will probably cost a little money.

If you want to use a business name, you'll have to register that with the state.

Also, if you sell parts, you may need to charge sales tax. In that case, you DO need to register, but I'm not sure what all goes into that.

You will need to pay taxes on any income you make... and after your first year of business these usually need to be paid quarterly.

Hope this helps.

NOTE: I'm not a lawyer and make no warranty of this advice!

 

[rhino400]

After some looking around online. It looks like what would work best for me is a sole proprietorship and to purchase business liability insurance.

 

[Slab]

At first, you will probably not be as busy until people know you are even there for service. You can start out by just making sure that people understand that you are doing a "as is" type deal for a "friend" until you get enough business to actually move into registering a name and business license. Ill do some research later today and get back to you with the differences in liability between companies.

good luck

 

[rhino400]

The main reason I am thinking of doing this is because I have friends at school recommending me to their friends to fix their computers. In the past I did it for free for several people. My thinking is since I'm already a full time college student I might as well make some money from the people who are already gonna ask me for help.

 

[spasmo]

I personally would recommend setting up an LLC. If you think you will owe money to the government come tax time, make sure you pay them quarterly (or when you get paid - every other quarter) so that you aren't scrambling for money.

Get a business account at the bank and pay yourself out of that account. Leave tax money in there and then when tax time rolls around, you just pay it out of that account.

If someone sues you, then they'll sue the LLC and not you.

Make sure you keep track and receipts for all business expenses. You can write them off on your taxes as well.

I don't know how to deal with sales tax though. Someone else may be able to give advice on that subject.

Check out vistaprint and other free business card places too. The cards may help spread the word around for you.

 

[chasekerion4]

After some looking around online. It looks like what would work best for me is a sole proprietorship and to purchase business liability insurance.

Don't do it without being legal beagle... You risk a LOT more than "a little extra money"

 

[NEWMAN]

When you think you are going to make money on the deal switch to a CORP right away. Or you will be taxes twice

 

[spasmo]

Taxed twice? Please explain.

 

[Flintlock]

I believe the LLC you pay taxes on the business income and then you pay taxes on the money you personally make from the business, whereas with a corporation you only pay taxes through the corporation. I could be wrong though.

 

[Slab]

I believe the LLC you pay taxes on the business income and then you pay taxes on the money you personally make from the business, whereas with a corporation you only pay taxes through the corporation. I could be wrong though.

correct. you pay the sales tax on the products and sales, then again when you pay yourself through the business.

 

[slacker]

I did the computer repair thing through craig's list for a while, and it was really more trouble than it was worth. people always expected you to magically recover their data, make their old pentium III run like a brand new computer for free, have every imaginable piece of hardware on hand, fix things faster....

I stopped doing it a long time ago because it just was not worth it. After that I started building low end computers for cheap and selling them on craigs list for a marginal profit. this was more enjoyable for me, and I did not really consider the time spent building / configuring the systems as "work" since it was a hobby.

After doing that I started moving into networking and security camera installs. This is where I really found my niche. All of this was while I was getting my BS in compupter science. Now I am working as an I.T. professional and could not be happier.

You made a great choice in doing an internship, was it closely related to what you want to be doing when you graduate?

 

[bigus_D]

Regarding the double tax issue. I believe this issue exists in corporations not in LLCs, LLPs, sole proprietorships, etc.

Corporations must pay taxes on all profits (before making distributions to owners). When corporate owners receive distributions, they then must pay tax on these funds (which were already taxed when the corporation earned it).

In an LLP (for example), the partnership doesn't actually pay any tax. All profits are split equitably among the partners, and each of them must pay tax on their share of the profits (each at their own nominal tax rate). This is single taxation.

In a sole proprietorship, I believe all profits would flow directly to the sole owner's filing as additional income and would therefore be single taxed.

SO.... I believe NEWMAN was incorrect in his statement above (though I've been wrong before).

 

[pjcalla]

...

 

[teknickle]

First off, you do not need a 'business license' of any kind. Such a thing does not exists.
If you are doing business under a name like 'Habeeb's Computer Repair' (and your name is Habeeb), then no paperwork needed AT ALL.
If you make up a name, then you need to file a DBA (doing business as) with your country govt. Last time I filed one it was $9 IIRC.

If you sell product and need to collect sales tax, you need to obtain a 'Retail Merchant Certificate'. Last time I got one it was $25. (I started a computer repair company in 1995 and that is what it cost back then).
With that Retail Merchant Certificate, you are now EXEMPT from paying sales tax yourself on products that you will resell (or incorporate into the things you build to sell).
As you collect sales tax, you throw it in money market (or low yield checking) and then pay as the state deems (slow sales is quarterly).


You can also do low voltage work (networking, AV) without being licensed or bonded. Be aware of weird gotchas like the recent passing of new building codes in South Bend, Indiana that require you to file for a permit to install phone jacks, audio jacks or network jacks (at $6 per wallplate or port--I don't recall).

Insurance is not required, unless a customer requires it.
For example, I have done work where they wouldn't let you step in the door unless you had $2 million in liability insurance (with them as beneficiary).

Otherwise, you determine your acceptable level of risk.
Don't let anyone else push you either way on the issue.

As far as business organization goes, leave it as sole proprietorship and convert to LLC when you get time to fish through the papertrail. If you form a C or S corporation, then you can do other fun things (like lease your personal vehicle to the corporation for use), but the paperwork is heavier.
You also do NOT need a lawyer for any of this. IIRC, it costs $50 to incorporate.

Your first stop should with with SCORE. I had the unique opportunity through a special contract to consult the SCORE consultants on ebusiness and technology initiatives about 7 years ago.
They are real nice retired executives (part of the acronym there) and would give you some solid ....and FREE advice.

Contact your Chamber of Commerce to hookup with your local SCORE chapter.

 

[pjcalla]

Please disregard my previous post. I gave some information that was not 100% correct. If you need further help, let me know, and good luck with your venture.

 

[NEWMAN]

Originally Posted by Flintlock
I believe the LLC you pay taxes on the business income and then you pay taxes on the money you personally make from the business, whereas with a corporation you only pay taxes through the corporation. I could be wrong though.

Bingo

 

[bigus_D]

Originally Posted by Flintlock
I believe the LLC you pay taxes on the business income and then you pay taxes on the money you personally make from the business, whereas with a corporation you only pay taxes through the corporation. I could be wrong though.

Bingo

This is clearly incorrect. Corporate income is taxed and then any profits taken out of the corporation and distributed to shareholders (dividends) are then taxed (again!). This is the classication definition of double tax.

This does NOT occur with a partnership (LLP) or Sole Proprietorship. This also does not occur in an LLC, if organized correctly as a pass through entity.

Corporate tax - Wikipedia, the free encyclopedia

 

[NEWMAN]

no its correct.
Business pays taxes on the income, and you pay taxes on your personal gain from the business.
And in the end. YOU are the business so you are paying taxes on the business income and also your personal gain.

I would love to see your credentials on this. I have only owned a business for 4+ years with 20+ locations in two states.
So like everything I allways like to learn more so would my business lawyer and my CPA.

I could wiki and find any anwser I need but in real life you pay the irs what the irs tells you to pay.
p.s. not saying you don't know your stuff, so no arguments withyou just discussion

 

[bigus_D]

no its correct.
Business pays taxes on the income, and you pay taxes on your personal gain from the business.
And in the end. YOU are the business so you are paying taxes on the business income and also your personal gain.

I would love to see your credentials on this. I have only owned a business for 4+ years with 20+ locations in two states.
So like everything I allways like to learn more so would my business lawyer and my CPA.

I could wiki and find any anwser I need but in real life you pay the irs what the irs tells you to pay.
p.s. not saying you don't know your stuff, so no arguments withyou just discussion

Double taxation is when the government gets paid on the same income twice.

Corporations pay taxes on any profits they generate. The remainder (after paying taxes) can then be distributed as dividends to the corporation's share holders. The shareholders must then pay tax on those dividends. This is the classical definition of double taxation.

Do a google search for Double Taxation... I just did. The first five entries (and probably the next 50) all say just about exactly the same thing.

Partnerships (LP, LLP, Etc.) don't do this... all partnership profit is passed directly through and reported on the owners' personal tax statements.

My 'credentials' are as follows: I'm a tax paying corporate share holder (where I pay the second round of taxes on all dividends received), I am a general partner in an LLP where I pay taxes on the partnership's income per the pass-through method (per the LLPs issued 1065 statement). I am not a accountant or CPA, but I did write the software which manages accounting for the corp I work for. I do my own taxes and am 100% confident on this issue.

It sounds like you are agreeing with me when you say "
Business pays taxes on the income, and you pay taxes on your personal gain from the business.
And in the end. YOU are the business so you are paying taxes on the business income and also your personal gain." What you have describe here is double taxation... The only difference I see is that an LLP (and a properly structured LLC) doesn't have this issue, as all taxes are passed through directly to the owners.