8 replies to this topic

[patrickh]

I'm starting to do some consulting in my free time, and am wondering if I should or even perhaps am required to setup something like a DBA? To be perfectly honest I don't know the reason to get one, but I having people just pay me directly does not seem like the proper way to do this. I have a little faux company name ("My Name Consulting") that I have just for the sake of putting it on invoices and estimates, but have no real paperwork for that. Don't call the IRS on me, just give me some advice

[deborah2002]

Well, I was told that if you have your full name (ie: "John Smith Consulting" you don't need a DBA because that would be redundant.

However, if you are "Smith Consulting" then you need to register. I live in Florida and I'm not sure if the laws vary, but down here it costs $50.00 (more than the license to DO the business!) and is a must if you don't have your full name as the business name.

Hope this helps!

deb

[Scottie]

The best place to start is your state's Department of Revenue website. Most of them are fairly decent these days and cover "starting a small business" in their informational areas.

[mcanerin]

I registered a tradename and with that was able to get a bank account. (I also have an incorporated company, but you probably don't need to go that far).

Simply by using a name in conjunction with your business is a tradename, much the same as you have copyright just by writing something new, but in both cases it's better to register it. By registering it you gain additional benifits, not the least of which is easy proof and more credibility. AS part of this they do a name search to make sure your name doesn't conflict with somone elses (that can cause trouble and the one that didn't register loses). scottie alluded to this in her post.

Talking only about registered tradenames and DBA's (same thing usually), by having one you can get a business bank account. This is very helpful because it gives you a professional front, and allows you to organise your finances (and taxation) better.

MIXING BUSINESS AND PERSONAL BANK ACCOUNTS WILL GET YOU IN TROUBLE. Don't do it. The reasons why can fill a book and certainly fill courtrooms across the country. Not to mention being a huge red flag for the tax authorities.

At the very, very least, open a new personal account and only do business from it. Banks don't like that BTW, so I'm not recommending it.

Basically, go to your local bank and ask them what you need to get e business bank account. They will give you a list - follow the list. Usually it's a business license and a tradname/dba, but each jurisdiction has it's own rules. It will likely cost you less than $200, and occasionally less than $100.

Also, remember the above advice is based on the assumption you are making more than 5-10k this year from the account. If you are making less it's not as necessary, and once you hit 30k or so then it's time to look at incorporating.

My opinion, as usual,

Ian

[patrickh]

I will definantly look at my local state revenue site about getting this all set up properly. I thought about getting a business account, but was not sure how it would work in the sense of me getting the money. For example, say I will get 600$ a month for the next three months for freelance projects, then I go for 2 months without making anything -- how do I go about transfering that money to myself? I can't give myself a set salary of $500 a month if the money is not always there, and just depositing it into the business account then taking it rightback out for myself seems a bit backwords...

[Scottie]

As a sole proprietor, you don't have to pay yourself anything. You can make transfers out of the account as you like. It still all rolls up under your own taxes as income, but it is easier to justify business expenses when you show them in a separate account. And eventually, if you incorporate, you'll already have good records.

[mcanerin]

Right! For you, you could very easily just treat it like a savings account (for the most part). The good thing about it is that every transaction is accounted for (you can't just take out cash, for example - normally has to be a check) and therefore your accounting is easier. It's your money - you don't have to get into things like setting up payroll systems - you just have to make sure it's accounted for properly.

To quote Scotties quote: "Make everything as simple as possible, but not simpler. " -Albert Einstein.

You should get a biz account, but don't think you have to do more than that for now. One step at a time. I wasted a lot of time and money setting up all sorts of stuff I didn't need because I was concerned about making a mistake at first.

Ian

[compar]

I thought about getting a business account, but was not sure how it would work in the sense of me getting the money.

Getting the money out is the easiest part. Just write a cheque or get a debit card on the account. Spending it is easy. The hard part is putting it in and keeping it in.

But on a more serious note if you intend to declare the income and pay taxes it will be a lot easier to do and keep everything straight if you have a separate bank account. I don't know the US tax laws, but in Canada a small business get a much lower tax rate than individuals and a business can write off expense whereas an individual cannot.

[mcanerin]

I haven't paid taxes for 10 years. And in Canada that's actually quite an accomplishment!

More clearly, I paid some taxes, but after all my deductions because of my business, I got it all back (with some left over to use in future years if I need to).

This isn't to say I'm sitting on big bags of money here, after all in order to get a deduction you have to have spent the money. I guess you could say I paid taxes to my business instead of the Government. Gee, I hope Prime Minister Jean Chrétien won't starve or have to use public transit or something...

Ian