This week’s blog was inspired by conversations I’ve had recently with a few new tax clients. Part of my job as a tax professional is to learn about clients’ circumstances and activities so I can help them be aware of and comply with federal, state, and local tax rules for operating a business.
Clients who engage in business activities sometimes need my help to understand the rules that are not related to income taxes. One of those rules is about registering a business with the state, county and local jurisdiction where it operates. Individuals who do freelance or other non-employee work may not realize that they are running a business, albeit a small one.
Individuals engaging in business activities, freelance or otherwise, should get clear and accurate answers to these three questions:
- Is my activity a business?
Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit. Profits are often not made in the early stages, but the business activity starts when goods or services are offered in exchange for funds. In other words, even a small freelancer is engaged in a business activity.
- What does my jurisdiction require?
States, counties, and cities want to know about business activities that operate in their jurisdictions. One reason is to enforce safety and zoning laws, but another big reason is to get their fair share of business tax revenue. Businesses are required to register in every jurisdiction where they are located. License fees, registration fees and taxes vary.
- Where do I get help?
Being a business owner in the 21st century means that you have Internet access to every resource you need. State, county and city websites are a goldmine of information about registering a business and other requirements. Government websites usually have pages dedicated to new businesses with checklists and links.
Business activities, freelance or otherwise, must be registered with the applicable state, county and local jurisdictions. Figuring out the requirements is easier than it’s ever been with all the online resources and links. Do a little homework to ensure that your business is aware of and complies with the rules.