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Home Business Legal Issues
If you are planning on starting a new business which will operate out of your home, you'll need to take some steps to make sure your home business is legal, and all your legal paperwork and documents are in order prior to starting up.

Check with your local SBA and find out about any zoning laws or restrictions that may exist in your area, and make sure it's legal for you to operate a business out of your home where you live.

You'll need to determine the legal structure of your home business:

Sole proprietorships

Sole proprietorships are the most common type of home based business because they are the cheapest and easiest to start. There are no legal forms for you to fill out, and you can open or close the business at any time. Profits you see will be on your tax return as Schedule C income. You will be able to choose your business name and file a DBA ("doing business as") form with your county.

If you plan on doing business using any other name for your business other than your own, you must file a DBA. It's a quick process, and pretty cheap (I paid about $10 for mine.) If you plan on opening up a business checking account, you will need a DBA, because most banks and lending institutions will require one on file.

The cons of a sole proprietorship is that they also make you personally liable for any debts incurred while doing business, and liable if the business should fail.

Sole proprietorships allow you to operate your business under your social security number. If you are the sole employee, you do not need a Federal Tax ID#, but you can still deduct all business expenses. You must still charge sales tax, whether you are selling a product or a service. For this reason, it is really important that you get the advice of someone familiar with tax laws, and call your State Comptroller's Office. You can go to the library and read up on this subject, and visit your state's Web sites for tax information.

Limited Liability Companies

While less expensive to set up than corporations, this business structure still offers liability protection to the members. Profits and losses will be reported on the member's  individual tax returns, with no need to file a separate business return.

Many believe that the LLC is better for tax purposes than any other structure.

There is no limit to how many members an LLC can have. For setting up an LLC, you'll need to file articles of organization with the Secretary of State for your state, or the state where you will be doing business. Some states also require you to file an operating agreement, which is similar to a partnership agreement.

S Corporation

Most common type of small business corporation. Profits or losses pass through to the shareholders directly. The number of shareholders is limited to 75.

For setting up an S Corporation, you must first file with the state in which you are incorporating your business, and then complete IRS Form 2553 to elect S Corporation status.

C Corporation

Similar to an S Corporation except the C Corporation is a taxable entity, and the company's losses cannot be deducted by its shareholders.

Visit these sites for more information:

Information on starting up a new business, financing, resources, online business cards (free), this is the best place to start gathering information for your new business.

Provides home based and small businesses with marketing information, benefit and insurance advice, financial information, start up tips.

Business counseling, loan information, wonderful resources and marketing tools.

Nonprofit organization offering support and legal information for home based businesses.

Shareware programs to help you start your business.
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