e i e i N – What’s an EIN?

Employers Identification Number is commonly referred to as an EIN.  Start a new business and someone is going to be asking, “What’s your EIN?”

First, do you need one?  As the name implies, if you are an employer then you MUST have an EIN.  Anyone issuing a W2 is required to use an EIN, even household employers.  If you are starting a new business, have no employees and are a sole proprietor, then no you don’t.  You use your social security number for tax filing and bank purposes.  Separate entities, and by this I mean legally separate such as corporations, partnerships and LLCs, need an EIN.  The exception is a LLC that is a single member disregarded entity (unless they have employees).

To obtain an EIN the first thing you do is fill out an IRS form SS-4 regardless of the method used.  Then you can file:

  • Online 
  • Toll-free Telephone Service 1-800-829-4933
  • Fax (number depends on where you live)
  • Mail (address depends on where you live)

If you’re applying for an EIN, first of all, know what type of entity you are!  If you’re not sure, then don’t apply until you are certain.  If you mark corporation, then the IRS is expecting to see a form 1120 filed even if you decide that you’re really a sole proprietor.  Secondly, there is a question about employees in the next year.  If you don’t have employees and are not certain you’re going to have employees, then say zero.  Again, you put a number and the IRS is then expecting a form 941 and form 940 to be filed.

Unsure about a question on the application?  Ask your tax professional.

Sales Tax for Artists, Crafters and other Sellers

Sales tax isn’t a federal tax and each state has it’s own regulations, which makes it difficult to give hard and fast rules.  What I’m giving you are some general guidelines and a list of questions that you need to answer for yourself in regards to your state.  Google your state name and sales tax, and then a good place to look is the FAQ section.

  • What is required for registration?
  • What are the report filing requirements?
  • On what does your state impose sales tax?  Usually this is the sales of tangible property (something you can see, touch, etc.), but sometimes digital property is included.
  • What is the state sales tax rate?  Can there be additional sales tax for cities and/or counties?
  • Which sales are exempt from sales tax?  Commonly, sales of property for resale are exempt as long as you have a proper “resale certificate” from the buyer.
  • Are interstate commerce sales exempt from your state’s sales tax?
  • Does your state require sales tax to be collected on shipping and delivery?
  • Are sales required to be broken down on a receipt between sale price and sales tax?
  • If you have paid sales tax on items used to produce your property sold, do you get a credit?  Can you request a refund of these taxes paid?
  • Is there compensation/reduction for collecting and timely filing?
  • How long does your state require you to keep records?

This is my little “down and dirty” calculation to come up with sales tax from only keeping up with total sales/receipts and with those that are exempt.  Also, exempt might be shipping, if it is not taxable in your state.  If you have numerous smaller sales, it is cumbersome to keep track of each sale.  And sometimes you may sell an item without  collecting sales tax (if it applies, you are still required to pay it even if you didn’t collect it).  There are other ways of doing it, but you’re pretty much stuck with always keeping up with AT LEAST two items.  You are going to need total receipts/sales for other tax reason, so that’s a given.  Some keep up with total receipts and sales tax collected, and back into the other numbers.  The key is to come up with a method that is easy for you,  gets the state it’s due revenue and BE CONSISTENT.

Business vs. Hobby

I’m posting this topic first for two reasons.  One, it is very important in terms of taxes to a small business.  I’ll talk about the tax implications in a later post.  Let me just say that it’s really not good to have your business reclassified as a hobby.  Secondly, is the IRS’s “facts and circumstances” for determination reinforces the importance of setting up your business properly.

Make a profit (income – expenses = profit) three or more years out of five, and the IRS says (most often) — you’re a business!  It’s those pesky losses that are a problem.  Even in good times, it takes several years for a business to be in the black.  Real businesses have losses.  This is where the “facts and circumstances” come into play.

Usually in “facts and circumstances” the IRS has some mighty slippery stuff, but in this area at least some of it makes a lot of good common sense.  These are the things that the IRS looks to when deciding if you are a business.

  • The manner in which you carry on your business (This is a biggie.  Keep business-like records.  Have a separate checking account and credit card.  Obtain proper license, registration, etc.)
  • Your expertise or the advisers you use (research strategies and trends in similar businesses, seek expert advice, and keep a record of what you do)
  • Time and effort your spend in the business (use some sort of log for time spend working in the business, even if it’s just notes on a calendar)
  • Do you expect your assets to appreciate in value
  • Have you done this before with success
  • Your profit and loss history with the business (Develop a business plan and periodically re-evaluate where you are and what you can do better)
  • Amount of occasional profits
  • Your overall financial status (Yes, if you have other resources, then they are more likely to consider what you do as a hobby)
  • Is the activity pleasurable (It’s a shame they don’t think your work could be fun!)

SUMMARY:  If you’re a business — act like one!

Welcome!

Welcome to the debut of Living within your Harvest!  Currently things are rather sparse here, but it’s my plan to fill out the bones with information, tips, reviews and resources for small business owners and just about anyone else who lives in the world.  Notice the “small business checklist” tab — it’s an outline of information pertaining to small businesses (and there soon there will be a checklist for personal finance also).  As I blog about various topics, I’ll link the post to the appropriate place in the outline.  Someday it will be fleshed out into a wonderful resource.  In the meantime, read the posts and learn some accounting!  Of course, it can’t just be lesson after lesson — I love accounting, but I doubt I’m in the majority.  My fondness for office products will probably find it’s way here as “reviews”.  And we all need inspiration — as I find it, I’ll share it.  Comments, suggestions and requests from you are very welcome– after all, this blog is for you!