Whether you’ve decided to strike out on your own and start your own business or you’re considering it, entrepreneurship is exciting, and it’s great to see people with that spark choosing to run things their way. We are so happy for you!
But we can’t hold back from talking about some of the more serious stuff, too. There are three very important things you’ll need to do as a business owner to give yourself a solid foundation upon which to grow: Getting started legally, tracking your business income and expenses, and filing business taxes.
Registering & Licensing Your Business
Business licensing and registration are state activities. We’re going to cover the procedure in Washington State only, but state licensing and registration regulations are similar for many states.
For WA businesses, you need a business license if your business makes at least $12,000 per year in revenue, or if it meets one of these other conditions:
- Your business requires city or state endorsements
- You are doing business using a name other than your legal name
- You plan to hire employees within the next 90 days
- Your business is required to pay taxes or fees to the Department of Revenue
- You are a buyer or processor of specialty wood products
- Your business meets Nexus threshold reporting requirements
You can get started with a business license here by clicking on the “Get Licensing Requirements” link. The wizard will ask you the following:
- What business activities you engage in (up to 5). For example, “Therapy, Counseling” is one business activity.
- Next, it will ask for your Business Structure, such as an LLC or Sole Proprietorship.
- Third, the State wants to know if you will be hiring employees, and if any will be minors. There are special requirements for employees under the age of 18.
- Fourth, enter the physical address of your business (within the state of course).
- Last, the wizard will notify you if it looks like you’ll need to register with a city for local taxes. Many cities in Washington State use the FileLocal website to process local taxes.
- Don’t forget to click “Expand” on the items in your summary so you can get all the information!
Tracking Revenues & Expenses
Do you tally up your expenses on a neon sticky note? Do receipts seem to slip through your fingers after you fill up your car each time? If this happens with personal expenses then “you do you,” but the IRS requires businesses to be able to provide evidence for their expenses upon request.
Beyond IRS requirements, tracking your expenses is just a good idea! If the business is not going well and you haven’t been noting where you’re spending your money, it will be that much harder to fix the situation.
We recommend using a receipt-tracking app on your phone to capture and store images of receipts for business cash expenses even if you have a policy of keeping the paper copy of the receipt. Digging through a box of hundreds of receipts at year-end is not fun.
Thankfully, card expenses keep a memo line for expenditures which helps with tracking both the vendor and the expense. Still, it’s good to review your card expenses at least once a month before you forget what an expense was for.
As for income, the great news is that non-cash income is tracked by your bank! Small businesses in service industries often have only one or two categories of income, so your bookkeeping for this will probably be rather simple. As you know, a big issue here is ensuring that client payments are clearing your bank.
Services like QuickBooks Online can simplify income and expense tracking, as well as other important bookkeeping tasks (such as bank account reconciliation). We highly recommend you consider using bookkeeping software as soon as you can.
File Taxes at Year End
If you are running a corporation or a partnership, you will need to file a special federal income tax return for your business. On the other hand, if you operate a sole proprietorship or “pass-through” single-member LLC business, you do not need to file your own federal income tax returns. In this case, you must file a Schedule on your 1040 (usually Schedule C) instead.
It’s important to note that even if your business doesn’t file its own federal income tax form, it still probably has to file state (and maybe local) income tax returns, often called B&O or Excise tax returns. Washington State determines your filing frequency for state taxes, which can be monthly, quarterly, or annual. If your city has local taxes, it may also have multiple filing schedules. Mark your calendar!
Just because you’re responsible for starting up and running your business the right way, you don’t have to do it alone. Contact us for help with business registration, bookkeeping, tax returns, state and local taxes, and any other financial concerns, needs, or questions you may have!
TL;DR: Starting and running your own business involves much more than just your primary business activity. You’ll need to register your business with your state, track your revenues and expenses, and pay state (and maybe also local) excise taxes. We are very experienced in helping Washington State businesses get started and we can even file your excise taxes for you. (You’ll still have to submit the payment for them of course.) Contact us for help!
