"I'm an Army wife looking to start up a home-based graphics and web design business. I know I need to set things up legally — and desperately want to, but my problem is our upcoming out of state move. My husband's been given orders to become a recruiter which means he'll be shipped off to Recruiter School soon and upon graduation in the middle of next year we'll be moving to a new location. We won't learn where we're moving until early February. As my husband has at least another eight years in the Army, this kind of thing is bound to happen at least three more times. How do I even begin to set up a business? Do I work as a sole proprietor until we're relocated? Or do I set up something more structured now?"
Until your situation changes and you get more settled, you are probably better off operating as a sole proprietor, as you will be able to move that from one location to another a lot easier than you could a corporation or limited liability company.
LLCs and corporations are state-specific — each time you move, you will have to shut down the old one and set up a new one, which can be very expensive and time-consuming. By operating as a sole proprietorship, you will be able to use the same federal tax ID number whatever state you are in. As you move into a new state, you will register with that state's tax authority and obtain a state tax ID number. If you move from one state to another in the middle of a calendar year, you will have to file two state tax returns for that year only — one in the old state for the time you spent there, the other in the new state for the time you spent there.
Of course, if you're in a business with a high risk of legal liability, you will be sacrificing the protection from personal liability that a corporation or LLC affords. But since you're doing web design work, it's highly unlikely you will be sued — if a client is unhappy with your work, he will refuse to pay you or you will give him some of his money back to keep him happy. Still, just to be safe, I would take out a basic errors-and-omissions insurance policy so that if you are ever sued, the aggrieved customer will go after the policy and not your house or other personal assets.
"I need a federal tax ID number because I am opening a new business here in the United States and need to open a bank account. I am originally from Sao Paulo, Brazil and don't have a Social Security Number. The IRS says that I cannot get a federal tax ID number unless I have a Social Security Number (SSN). I am planning to pay taxes, of course, but I am not planning to become a citizen. Do I even need a tax ID number to invoice my clients?"
First, you will need to check your immigration status. If the visa allowing you to live in the United States legally does not allow you to operate a business, then there's nothing you can do about that — you cannot operate an illegal business here. If your visa status allows you to operate a business here (or if you are planning to operate this business outside the U.S.), then you will need an ITIN (individual taxpayer ID number) from the IRS — it's like an SSN for people like yourself who do not qualify for an SSN (for details, go to the IRS website and check out IRS Publication 1915). Once you get the ITIN, you can use that to get a federal tax ID number for your business.
The trickier part will be opening a bank account. Banks in the U.S. are subject to complicated "know your customer" rules and will be very nervous about opening a business for someone like you without an in-person meeting (perhaps several) to make sure you are not engaged in terrorist activities, money laundering or any other type of criminal behavior. You will also need a U.S. business address to which the bank can send all correspondence.
As for invoicing your clients, it depends on the type of business. If you are selling goods at retail or wholesale, you normally do not put your tax ID number on the invoices you send to your customers. If you are in a service business, however, and you perform more than $600 worth of services for a customer during a calendar year, that customer is required to send you a Form 1099, with a carbon copy to the IRS. They will send you IRS Form W-9 requesting your federal ID number, and you sure as heck better have one by that time!
Cliff Ennico ([email protected]) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our webpage at www.creators.com.