| First step: get an appointment with a few CPAs - you can usually get a free
consultation - they have the real answers as far as taxes, etc. and you
may get good advice in general from some of them.
From what I know: she'll need to register her business with the town you live
in (if this is MA - I'm not sure how it works in NH). This is just go to the
town clerk and say you want to register your business. Pay $15 or something
there abouts, and pick a name for the business. She'll need the registration
to open a business bank account.
Income tax procedure varies with the form of business - I assume she'll be
a sole proprietor, but this is something to discuss with the CPAs and maybe
a lawyer - can usually get free consults with them too. May need to make
quarterly federal tax deposits for estimated income tax. Not sure about the
state, but may be the same. Need to register with the state if she will need
to charge sales tax for the cakes - I'm not sure if cakes are taxable.
You can call Mass. Dept of Revenue about sales tax (617-727-4490) and about
income tax (617-727-4545).
Social security/medicare for sole props is called "self-employment tax" on
your form 1040. I'm not sure if you pay it all with the annual return, or
quarterly. It ends up being the same as paying the employee and employer's
parts of those taxes (15.3% of income).
The IRS runs a tax seminar periodically - it's a whole day, in Boston.
The state takes a part of the day to give that info. The IRS runs it
thru the Small business Taxpayer Education Program (STEP). It's free.
Try calling the IRS about it - I don't have the number. When I started,
they found me and offered it (they're good at finding you... ;-)
If you already know she'll need liability insurance, call a few insurance
agents for quotes. If she doesn't think she'll make over $1000 a year,
the liability insurance may eat most of that, so it'd be good to find out the
price right away. My liability insurance is only about $200 a year and it
covers my hardware too, but I don't regularly have clients coming to my
house to pick up cakes, so it's cheaper.
It's a lot of details and things to get used to up front, but after a couple
times through it, it's not bad. Just be careful to cover all the bases at
the start and learn how it all works, and it'll be a breeze.
One more advice... you'll probably get this from the CPA anyway, but... make
sure to keep the money for the business and your household completely
separate - different accounts, maybe different banks. Pay for business
stuff with the business account. Keep separate records and keep good ones.
If the IRS can't tell your business from your household, they may disallow
the business and refuse your business tax deductions. Again, it's not a
problem if you run the business like a business and keep everything in
order.
Have fun! It's a great adventure.
-Steve
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| Some more info... if a sole proprietor, she'll need to file Schedule C
with your annual form 1040. Since you've probably got the forms close at
hand this time of year, look over that schedule - it might give you some idea
what you need to account for and some opportunities to take deductions that
you can keep an eye out for during the year.
-Steve
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| Also, check your local bookstores.
There used to be a series of books called something like "Doing
Business in <state>" which were published in looseleaf format. It
covered most state and federal statutes and provided a good foundation
for starting a business. I am not suggesting that this replace
contacting a CPA, but it should allow you to get things in order before
you have to spend time or money nailing things down.
-- Russ
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