The Business Side

[Ricky Gore]

Well,
I had my business partner (wife) all set to move ahead with the purchase of a laser until we started looking into the business side. Setting up a business getting a Tax ID, registering the name, setting up a seperate bank account. All this before we can even order the machine? Man, I hate this side of it. I realize it must be done, but I still hate it. :eek:

Are there any tips on getting this started quicker? We live in Tennessee, and we have an offer for a demo laser on the table and it's a good offer, but we may miss it if we have to wait for all this stuff to be completed.

Thanks,
Ricky

[Mitchell Andrus]

Buy the laser and sell it the company later. You might look into leasing it to the company and taking the write-off (depreciation and interest) yourself since the company isn't likely to show a profit for a while. Check with a tax advisor and keep good records.

[Joe Pelonio]

Anyone can buy a laser, the business can come later as Mitchell suggested. Save the receipts though, you'll need it for tax purposes, that's a pretty good sized business expense. The paperwork does take some time, but is not that bad. When I did it back in 1993 it took just a couple of days, then a few weeks wait for the licenses and things to start showing up in the mail.

[John Keeton]

Ricky

I am in Kentucky, and it may be different here. And, although I am an attorney, I do not do tax work. But, you can probably take Section 179 depreciation and write off the entire cost of the laser in one year if that is an advantage - depends on your overall situation. Also, the comments on making the deal and selling or leasing to your business will work as long as the business is a separate entity - corp, llc, etc. If you do a corp, you may want to look at a Sub S so you can pass through some of the losses in your start up phase. My wife and I are where you are right now. We have set up our corp, gotten a Fed ID #, waiting on the sales tax permit, etc. We will probably purchase a machine in the spring. The other thing to think about - in KY, the laser purchase would be exempt from sales tax if the machine is used in manufacturing goods. Don't know about Tennessee and your sales tax laws. Checking with an accountant and attorney may be cheap investments if you end up saving hundreds or thousands in tax benefits, etc. Good luck, and let us know how it goes for you!!

[Stephen Beckham]

John,

I'm a fellow Kentucky'n... The state commerce department sent someone to my store to force me to pay the $1300 sales tax on my purchase of my laser. Basically it came down to a business purchase versus a personal purchase. She showed me in the KRS's where business write-offs which will be "used" for business purposes fall under the June 2005 changes for Sales and USE taxes.

Had I bought it before the business or before June 2005 - she said I could have ignored it because the state is not chasing down personal use of equipment, but they are going to start auditing business who 'use' this equipment type write offs if they are not showing 'use tax' payments...

Took it to a local Lawyer and he concurred... I paid - wiped out my start up capital's "slush fund."


Anyway - do concur with buying it and leasing it back to yourself - if you are not going to form some Corp at some level - you can't lease from yourself. A 'S Corp' can lease from anyone including partners or admin of the Corp. If you're a proprietor or partnership - be careful who you 'lease' from. You'll get bit during tax season.

My advice - follow through with the tax id at the same time as the purchase - it took me less time to process the business than it did to purchase the laser. A laser ordered does not consitute a laser purchased until delivery date. If it's delivered any time after the business is up and running - it's a business expense.

And John - please - I'm a retired military guy self educated - if I'm incorrect in any statement above, I've got thick skin - lay it out... I'm not trying to sharp shoot you, but just giving my story and my lesson learned...

[Ryan O'Hara]

Best bet, get a CPA now! I am closing the deal on my laser and had to bounce several options off the lawyer and the CPA. CPA's advice is what made us go down the path we did. We have a great local guy who doesn't mind dealing with small businesses. Good luck!

PS Did I mention getting a CPA.

[John Keeton]

Stephen

Your comments, input and personal experience are appreciated, and I hate the fact that "Unbridled Spirit" made off with your money!!

I prefaced my comments with the statement that I don't practice tax law, but I also don't trust that government agents are correct all of the time. "I'm from the government and I'm here to help you!!"

You were apparently assessed "Use Tax", which is assessed on a purchase when the Sales Tax is not paid at the time of purchase. The issue of whether the purchase should have been tax exempt from the get go may not have come up at all - don't know as I wasn't involved. Neither do I know how you use your machine in your business. Tax situations nearly always hinge on some inconspicious factual situation.

Your situation could be an issue of timing, or some distinguishing factual pattern about how the machine was purchased. If one has a Kentucky Sales tax permit for manufacturing and resale, I would argue that the machine was purchased for manufacturing purposes and was exempt from tax. The question may have come up if you did not make the purchase as an "exempt" purchase by the presentation of an exemption certificate, but simply did not pay sales or use tax on the machine. Take a look at the regulation at this link http://www.lrc.ky.gov/kar/103/030/120.htm

And, again, I don't do this stuff for a living. I am one of those hated trial lawyers that has a good CPA do my tax return and to whom I turn for guidance, so the comments about getting a good CPA involved are right on the mark. On the other hand, I enjoy taking the "guv'rment" to task at times, and if the facts were on my side on this one, I would probably end up with a protested assessment. But, I would have the advantage of fighting my own battle. From your perspective, it would be a short trip to burn $1300 on lawyer fees and accountant fees, not to mention the headaches. You may well have done the right thing - all considered.

This is where planning comes in, though. A visit with a CPA prior to setting up a business, or making a purchase, could save money in a variety of ways and I think that is what both of us are saying. Even as an attorney, I have consulted with a CPA regarding the business formation, and will consult before making a purchase.

And lastly, I don't take offense from anything you said. I do take offense with "our" government doing nearly everything that it can do to crush the small, independent businesses that are the backbone and foundation of our state and country, while the megacorps can hire the best in the land to skate through all the hoops!! And now, I will get down off my soapbox and let someone else have it.

[Stephen Beckham]

John - thanks for your input - and thanks for not taking it wrong. They've paid two visits to me to make sure I'm not 'wrong.' - I've only been here since March 07...

Since then - I've laid into several higher ups in the state via email hitting on the same subject as your response. I joking stated it's funny that I'll be the one getting audited because I've complained. It's also funny with my total business worth being what it is - they'll spend $50K in audit expenses to get a couple hundred from me...

I did win one - they wanted me to pay Workman's Comp because I'm sharing retail space with a framer. "One of you have to be working for the other, there can't be a trust relationship or contract that allows you to have two seperate businesses in one retail space." :confused:

It's a quote - I'm not making that up. My reply was that I'd forward the email to the local Mall to see what kind of workman's comp their Kiosk owner's are paying, and then I'd pay the same. I got a response saying that "If you are operating as a Kiosk as a seperate business out of the Framing shop and you have two seperate business tax id's, you do not have to pay workman's comp."

This is the same department that no longer funds their Minority and Veteran Owned Small Business Assistance programs. They've done more to try and keep me from opening than helping me - other than offering paid counselling for business startup.

Now I'll join you in getting off the soapbox - thanks again for the link and advice - how much do I owe - $6? It's worth it... :p

[Rodne Gold]

Seems extremely complex in the States to set up a small business. Can't you just start up and when its viable , go thru all the red tape?

[Mike Null]

Rodney

In some states you can but every state is different. You do have to get a federal and state tax identification number but you can do that over the internet most places.

A lot of hobbiests don't bother and don't report their sales nor collect tax. That's a bit risky but probably harmless.

[Gary Hair]

Oregon makes it pretty easy, I did everything online. Like others have said though, buy the laser now and get the paperwork done when you can. Don't wait too long though, you want to be sure you are legal when you start actually doing business.

Gary

[Ricky Gore]

I really appreciate all the input. I spoke with my sales rep again, and he agreed to hold the same deal until the end of the month. He said there is someone else looking at the machine, but that may be good, because he said if the other guy buys it, he will sell me a new one at the same deal.

So, I am looking for a CPA right now, and we will definately get the business side setup first.

Thanks again!

Ricky :)

[John Keeton]

Stephen

Yes, the charge is $6 and I will consider your 2008 contribution to the creek as payment in full!! Maybe I can find time to come visit after the first of the year and we can share a dinner and unload our tender feelings regarding our wonderful government servants that are trying so hard to bring a revitalized economy and new business ventures to our state!!

Gary's comments regarding doing most of it online are probably correct for Tennessee as well. One can form a corporaton in KY online, but the sales tax permit is obtained by completing a business registration form which is available online but must be mailed or faxed back to them - kind of halfway technologically advanced!!

[Bill Cunningham]

When I started my business in Ontario almost 20 years ago, one of the first people to walk through my shop door, was the local county tax assessor with my business card in his hand that he pick up off a local bulletin board at the grocery store.. When running a business from my property, a percentage of my property became commercial use, and therefore taxable.. Not much, only about 100.00 a year back then, but they 'had' to get that hundred bucks I guess.. (They ding me a lot more now, but I have a much larger building on my property than I had back then) Any production equipment I buy is retail tax exempt, because I charge Provincial sales tax when it's sold. Our 'other' tax is GST or goods and services tax.. GST/PST put them together like that, and sound it out, you get the general consensus of most folks on those two taxes.. Everyone here pays GST, if your registered, and have a GST number, you claim back any GST you have paid in the operation of your business, and you charge the 6% GST as well as the 8% PST to the customer on each purchase. If you are not registered for the GST, 'you' pay the GST when you buy something, but you don't have to charge your customer the 6% GST. You are 'only' exempt from GST registration, if you sell less than 35k a year (I think, it may be 32k) some the part timers not making much money are not hassled by the feds until they cross that magic number.. PST however must be charged by every one selling something other than personal property.. There have even been cases of the PST 'cops' hassling kids with lemonade stands... This is of course not much interest to the folks in the USA, but anyone starting a business in Ontario should check their status, and personal situation.. I'm no CPA nor do I play one on TV.. All just personal experience:confused: