Starting a legit business

[hamchan]

So I started renting a massage studio two days a week about for months ago. Until now I have only been doing a handful of paid massages out of it each month, and wasn't making a profit on it, so I never bothered to get a business license or anything. Technically I do not need one here until I am grossing at least 12,000 a year from it, and I am not even close.

But there are a lot of tax advantages to running it as a legit business, and we pay a lot of taxes. I could deduct expenses for my licensing and liability coverage, plus any continuing ed I have to take. So, hmm. And in the last month things have really picked up. The handful of clients I have are referring others, and coming in more often. This month I should make more than double what I am paying for the place.

But the idea of doing all that paperwork and having to be super organized for what is still a very part time income gives me migraines. And I would feel sort of obligated to make it a profitable venture, instead of keeping it easy and casual like I do now. I am afraid I will mess it up somehow.

Advice? Any resources you know of to make this as easy as possible? I am conflicted.

[KTP]

It isn't very hard to set up a sole proprietorship in WA state. I think the license fee is like $75 or something? You can file taxes online.

Most likely your first year or two would be deductions against other ordinary income because you could get instant depreciation on purchased supplies, even those you bought before the business started. You would just bring them into the business as an asset and depreciate them.

You need to try and show a profit in 3 out of 5 years or the IRS may classify your business as a hobby. What you are doing doesn't sound like a hobby though.

[ua_guy]

It isn't very hard to set up a sole proprietorship in WA state. I think the license fee is like $75 or something? You can file taxes online.

I've heard similar remarks to this. It can't be that hard, plus it's a one-time effort to set it all up, and there can be tax advantages. My vote is do it, and let us know how it goes!

[jIM_Ohio]

I have formed 3 companies, all which are still in Business now. I used trusted attorneys all 3 times, although many people tell me I could have done the work myself. One attorney charges $350, which was her $175 fee and the $175 state filing fee, the other attorney charged $1000 and included some consulting on other issues.

You can claim the expenses without forming an LLC. That is schedule C. Even with my LLC, I am still using schedule C, the difference is the risks I am taking vs what you are taking.

[hamchan]

OK. OK. So what else would I need to do? Open a business bank account? Pay taxes quarterly? How do I know how much to keep in the business account vs. how much of it I move to my regular account as income?

I haven't had to purchase very much. The studio has all the furniture and equipment one might need. I just had to buy a few sets of sheets at Value Village, a lotion bottle holder and a bottle of massage lotion. I don't really have any ongoing expenses besides laundry, rent, and buying more lotion every few months. How do I keep track of expenses? I will probably have to initially open the business account with non-business money. Is that going to make things complicated later? I will also have to pay self employment tax, right?

[KTP]

Oh, oops. Massage Therapist might be a bit more complicated in WA state than I thought.

http://www.doh.wa.gov/LicensesPermitsandCertificates/ProfessionsNewReneworUpdate/MassageTherapist.aspx

Evidently there is a law passed in 2011 regulating this industry. Figures...there is a law regulating how often you can pee in Washington State.

[hamchan]

A massage practitioner’s name and license number to appear on all of his or her advertisements.

A massage practitioner to conspicuously display his or her license in his or her principal place of business.

A massage practitioner to have a copy of his or her license available for inspection while performing any activities related to massage therapy if it is not his or her principal place of business.

Well, I already have my license number on my business cards, and I also have my license hanging up in the studio. I don't do massage outside of the studio and my job at the airport (they also have a copy of my license) so I seem to be fine on all of these.

[Mjenn]

Is there a small business group/support in your area? I used this when I was starting up and found it a great asset. Also go and talk to your bank and get a good bookkeeping program asap. This way you have everything correctly documented from the get go. Then, you can use your online accounting to find business expenses in the past and use them toward your business as well.

I'm not in your state, but check out the pension set up as well. I can put away a lot more money tax free as pension savings having my own business, then if I were employed, and I try to take advantage of that.

[jIM_Ohio]

If you own a business, I recommend knowing 2-3 CPAs and 2-3 general business attorneys (which know business law, trademarks, tax law and employment law). Whether you join a BNI group with them, attend chamber of commerce with them, my opinion is having resources to ask questions to which you trust is priceless.

I would not assume you have state licensing covered until an attorney agrees. Ounce of prevention is a pound of cure.
I would not assume you need a bank account or not unless CPA or tax attorney advises that for a specific reason.

[hamchan]

See, if I had to do all that suddenly this whole idea is far more trouble and expense than it is worth for a couple hundred dollars a month in income. I'd rather just file it as misc income.

[Mjenn]

If you own a business, I recommend knowing 2-3 CPAs and 2-3 general business attorneys (which know business law, trademarks, tax law and employment law). Whether you join a BNI group with them, attend chamber of commerce with them, my opinion is having resources to ask questions to which you trust is priceless.

I would not assume you have state licensing covered until an attorney agrees. Ounce of prevention is a pound of cure.
I would not assume you need a bank account or not unless CPA or tax attorney advises that for a specific reason.

What good is 'knowing' these people. Most will not give you prof. advice unless you 'hire' them because hiring them protects all of you and professionally binds them -- them giving ad hoc advice could put you all at risk. Yes, they could give you some boiler plate advice -- which usually would involve starting an LLC if they are like my friends, but seriously, to hire 2-3 CPAs and tax attorneys you are going to need to have a lot of venture capital.

You have what you need, start up with what you think, and then get someone to help you at tax time and you should be fine (And you don't really need someone at tax time, I haven't had anyone yet), but it is one of the few things where it could save you both time and money in the long run.

[Gailete]

Besides state obligations, there are also the local and federal ones. I don't know what the feds consider miscellaneous income or how much, but you need to know this. It is easier to get things right the first time than try to back track months or years later when you get audited.

We run two businesses out of our home and the tax benefits really help. Whether it gives you a migraine or not, you need to find out what the rules are for local, state and federal when running a business.

[hamchan]

Besides state obligations, there are also the local and federal ones. I don't know what the feds consider miscellaneous income or how much, but you need to know this. It is easier to get things right the first time than try to back track months or years later when you get audited.

We run two businesses out of our home and the tax benefits really help. Whether it gives you a migraine or not, you need to find out what the rules are for local, state and federal when running a business.

There doesn't seem to be a cap on how much miscellaneous income you can claim, at least not that I can find. They seem to just be happy that you are claiming it, as many people do not claim income that doesn't have a paper trail. But I don't really know for sure. I don't even know where to begin to find these things out.

[jIM_Ohio]

What good is 'knowing' these people. Most will not give you prof. advice unless you 'hire' them because hiring them protects all of you and professionally binds them -- them giving ad hoc advice could put you all at risk. Yes, they could give you some boiler plate advice -- which usually would involve starting an LLC if they are like my friends, but seriously, to hire 2-3 CPAs and tax attorneys you are going to need to have a lot of venture capital.

You have what you need, start up with what you think, and then get someone to help you at tax time and you should be fine (And you don't really need someone at tax time, I haven't had anyone yet), but it is one of the few things where it could save you both time and money in the long run.

I did not say hire 2-3 attorneys or hire 2-3 CPAs. I said know them.

Many people know one CPA and trust them because they are the only "expert" they know. If you make it a point to meet 2-3, you can tell the difference between the good ones and the licensed ones.

Secondly, those specialties do give out free advice if you follow them enough. BNI groups, chamber lunches etc are full of free advice, you just have to be able to listen.

[hamchan]

I did not say hire 2-3 attorneys or hire 2-3 CPAs. I said know them.

Many people know one CPA and trust them because they are the only "expert" they know. If you make it a point to meet 2-3, you can tell the difference between the good ones and the licensed ones.

Secondly, those specialties do give out free advice if you follow them enough. BNI groups, chamber lunches etc are full of free advice, you just have to be able to listen.

Problem number one, you have to have a business to join the local chamber of commerce. I don't yet have a business. Problem number two, it's not free. There are dues. I can't even find out what they are without committing to having someone contact me. Even if I did/could join, what attorney/CPA is going to hold my hand and walk me through the basic process of setting up a business for free?