The Legal and Tax side of starting an ecommerce business

Anyone can have a basic website or blog in the U.S. The legal issues come with what you do on that site. If you’re selling products, for example, you’ll need to register as some kind of business entity with your state and collect and pay taxes for sales made in your state.

First off, it’s a good idea to start considering options to officially establish your business as a legal entity right away, as the paperwork and processing may take several weeks. You may want to contact an attorney for this process, or consult online resources such as Legal Zoom.

Most entrepreneurs will get started with a sole proprietorship and set up a DBA (doing business as) name to facilitate charges being applied towards an official-sounding business rather than an individual’s name. The second most popular option is the LLC, which adds a measure of protection for the individual while still keeping the registration process relatively simple and costs low (compared to what would be involved to set up a corporation of any type).

Once you know what kind of entity you want/need, your state should have a website with all the paperwork you’ll need to establish your entity. Do a Google search for your area. Also, be sure to find a phone number for the appropriate office who can answer questions about your application, and go through the whole thing to find all the questions you have so you can ask them all at once.

This is also a good point to consult an accountant to go over any tax advice you may need. There’s a lot you can do on your own online, like setting up a tax id. The easiest and fastest way to get an EIN (tax number) is online at http://irs.gov. Most basically, an EIN identifies tax returns filed with the IRS. The IRS will also provide a lot of information about that and any other tax questions you may have. When you get to the website, search for keyword ‘EIN’ and complete the form. You should get your EIN within minutes, for free. There are several companies who do this for a price, but it’s not necessary!

Browse through the IRS site to find more info that will help you get started. In particular, search for Publication 334, a Tax Guide for Small Business. Among other many other topics, this guide addresses:

• Filing and Paying Business Taxes
• Accounting Periods and Methods
• Business Expenses and Deductions
• Figuring Net Profit or Loss
• Your Rights as a Taxpayer
• How To Get More Information

Once you’re making money, it’s really smart to work with a good accountant. Also, Diane Kennedy’s tax advice books are very helpful and can be found on Amazon or other places online for decent rates. She is a CPA and stays current on specific issues for different types of businesses and real estate deals. Setting up a small business can pay off greatly in your tax benefits alone, regardless of the profit you make in the first two years! Careful planning with a keen knowledge of your possibilities, combined with advice from a lawyer or consultant can maximize these tax advantages.