What do I need to know about starting a new business?

[Goldy]

My wife has received her yoga teacher certification and will be starting her own LLC soon. I have heard that having a small business on the side can be a great way to minimize your tax burden but I know absolutely nothing about the details. She teaches a few times a week in a studio and a few times a week at our house. We have made an office room for her in the house that she uses to prep for classes and such. Any of you small business owners that could give me some pointers?

[Texas Saver]

You need to be aware of local regulations about home based business, permits, legal business formations, and liability insurance. If I client get's hurt at your home who is going to pay?
You may wish to consider forming an LLC, but consult with professionals including the local SCORE office.

[Bades]

I would first check to see if you have a local Small Business Development Center in your town. They offer free advice and help setting up a business. They helped me my first time with registering my LLC, the Operating Agreement, and obtaining my EIN, etc. Although they generally won't give you legal advice, they can at least point you in the right direction and give you contacts of reliable, attorney's, CPA's, etc.

I perform web development services, so I'm on the very low end spectrum of liability risk. You have people coming directly into your home, which to me seems like there could be potential for some large amount of risk/liability. Don't let that scare you, just do your research , talk to professionals (and establish a relationship with them), and once you get all your ducks in a row be a proud business owner!

[Bob B.]

I have heard that having a small business on the side can be a great way to minimize your tax burden

I'm no tax expert, but the only way I know of a small business on the side minimizing your tax burden is if it loses money. Then, is it really a small business?

[pretty cheap jewelry]

I am the sole proprietor of Pretty Cheap Jewelry, which means I am the only employee, am home based, have a city biz license as well as a CA resale license.

Here's the big advantage in our fiscal world:

I am able to deduct my biz expenses on our joint (family of 4) federal and state return. It is very very helpful. The important rules to follow have to do with

(1) having a dedicated part of the home SOLELY for the business. You will be computing the % of the home dedicated to the business and prorating utilities to deduct. For example, a daycare business would not be able to deduct the living room portion of the home since it is used by the regular family at other times. Or a catering business would not deduct the kitchen because it is used by the family at other times. I DO have a studio for just my business, your wife sounds like she will have a spare bedroom for an office. Just keep it separate from family routine.

(2) The allowable expenses get very tricky. This is where you see corporate bigwigs charging everything and anything as a business expense. I am very conservative and do not travel, entertain or otherwise waste money on those kind of expenses. I do keep a daily record of jewelry supplies, mileage and postage spent directly for the business and wholeheartedly deduct those. I do very little advertising, but on occasion, those are business expenses as well. Be very honest, keep meticulous records.

I started my jewelry design for love, and the tax deduction was a very nice surprise. My husband would never let me go back and close the business now!

Good luck and enjoy.

[TheKayla]

Keep in mind owning your own small business generally has higher tax rates than what you would pay if you're employed. It's most certainly not so burdensome that it should deter you, but keep it in mind when your wife is deciding rates, building a client base, and doing the finances. Otherwise, I only have the expertise of freelancing online, so I'm not sure of all of the other legal requirements she would need for running a yoga studio. I'm assuming there will need to be other liability insurance in case of injuries, probably permits for running business in your home, etc. I'd follow the others advice on here and definitely get advice for everything you need from someone who knows for sure.

[Chris Leese]

As a business, you can deduct your business expenses from your business income and pay taxes on the net. You need to be sure you keep business accounts separate from personal accounts.

You also indicated she was creating an LLC. If she is creating a single-member LLC, it is meant to work as part of the owner’s tax return (a disregarded entity”) with the protection of limited liability. You need to check the rules of the state you are in / state you create the LLC.