Business Licenses And Tax IDs

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Some business owners think that because their business is conducted online, rules and regulations that govern brick and mortar businesses don’t apply. They ask, “Do I really have to get a business license?” “Do I really have to get a tax ID number?” “Do I really have to pay taxes on income from my website?” If you wonder the same, know that the answers to those questions are unequivocally yes, yes, and yes.

The Business License

Operating a business out of your home office doesn’t let you off the license hook, though the exact requirement strongly depends on your location and the type of business that you run. Your city or county may not require a license. You’ll have to contact your city or county government office for an exact answer.

A Good Read: Federal Internal Revenue Code & Regulations

Home businesses are subject to zoning laws however, which regulate how property can be used. They may restrict various activities, so check your local zoning requirements and property covenants as well. You can find this information at your local court house or by calling your local license department.

The DBA

“DBA” stands for “Doing Business As.” A DBA is a business name you use instead of your personal name. For example, your name might be Joe Jones, but you might use “Jones Internet Services” as your business name. With a DBA, you can write checks printed with your business name (“Jones Internet Services”).

The Tax ID

Online companies with a physical presence are required to collect and report taxes on sales of taxable items made within those companies’ state. For example, if your online business is based in California, you have to collect and report sales tax derived from fellow Californians who buy stuff from your site.

And you’ll need a tax ID number for this, especially if you’re selling taxable goods (most services are not taxed). Fortunately, getting a tax ID number is a simple process of filling out a form and paying a small fee. You’ll file quarterly reports, and remit any sales tax that’s due.

Word of caution: a lot of entrepreneurs get into trouble when they spend collected sales taxes instead of sending them to Uncle Sam. Doing so invites jail time — an unpleasant result of mingling sales taxes with a normal business checking account.

Open a separate bank account dedicated to collected taxes, and deposit collected taxes into that account. Then vow to never touch that money until the time comes to send it in with your quarterly report.

Taxes

Telephone Assistance for Businesses: Toll-Free, 1-800-829-4933. Monday – Friday, 7:00 a.m. – 7:00 p.m.

Note that just because your income is derived from an online business, that doesn’t mean the income isn’t taxable. All online businesses are susceptible to the same laws and regulations that govern the corner mom and pop store, including yours! Current events can be found in our Business License And Tax ID News section.