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    7 Replies Latest reply on Mar 25, 2010 9:29 AM by webneeds

    general question about starting an online based business

    exodus125 Newbie
      Hello everyone, this is my first post!

      Up until now I have sold the stuff I make via ebay and forums and the low volume of sales has somewhat allowed me to put off dealing with registering as a company or business.

      I work with titanium and sell titanium waterproof capsules and other survival related items.

      My question is. Is there a way to legally set up an online business without having to have all the bells and whistles? For example, do I really need a business account? Can't I just report what payments I receive through paypal?

      I am currently working to set up my website. Before I do so I would like to have everything set up the right way. I am basically looking for the minimal things I need to do to meet IRS/government regulations.
        • Re: general question about starting an online based business
          exodus125 Newbie
          Just wanted to add, I dont have any employees and would be working from home.
          • Re: general question about starting an online based business
            amspcs Ranger
            First of all, my disclaimer: I am neither an attorney or an accontant, who are those you should consult in order to get the best answers to your questions for YOUR particular needs, which is to say may well lbe different from the needs of someone else.

            That said: #1, it's always better in the long run to do things the correct way than the incorrect way. And the correct way to run a business is obviously to be set up legally as a business entity. Depending on the state in w hich you live, getting an EIN (Federal Tax Number) or incorporating oneself is not that complicated or big a deal. You can easily find all the resources you need online.

            As your situation pertains to my line of business which happens to be payment processing, I can tell you this: If you do not have an EIN number and proper business entity papers, you are going to have a terriblie time getting a merchant processing account,
            at competitive numbers if at all. And if you plan on offering Paypal as your only payment vehicle, odds are that your chances for success are minimal to non-existant. Paypal certainly has a place as a PART of any businesses' payment acceptance program, but using Paypal as the ONLY payment vehicle available is usually a recipe for failure.

            Hope this helps.
            1 of 1 people found this helpful
              • Re: general question about starting an online based business
                exodus125 Newbie
                thanks for the reply. My problem with setting up anything other than a paypal payment is that I would not generate enough sales to make it worth while. This would not be my main source of income. I was told by a friend I could do business as sole proprietorship and just claim the income earned on my taxes.
                  • Re: general question about starting an online based business



                    We'll see if the community posts this response since I haven't seen my other response come through yet.


                    You are correct, you can operate your business as a sole proprietorship. This legal structure is the easiest and least costly to set up. You can go to or to enter in your information - legal structure (sole proprietorship), location, type of business (online retail) and some other basics. In return, they provide you a report with all the forms you need to fill out and the government agencies where you need to submit them.


                    And no, you don't need to open up separate business bank accounts or lines of credit.


                    Hope this helps for a start.


                    Doug Dolan


                    The Solopreneur's Guide


                    • Re: general question about starting an online based business
                      bpfinance Adventurer
                      Obviously it is very difficult to determine based solely on what you say, but based on what you have said so far, it seems like this is a hobby and not a business. There are problems that occur when your hobby has expenses as hobby expenses are recorded on Schedule A and are subject to the 2% of AGI floor. If the IRS asks you to prove that your business is a business and not a hobby, they will look at several factors.

                      First of all, not having a business license when it is required by your locality (city or county) could subject you to penalties if you consider yourself a business (which would be exhibited by how you fill out your tax returns).
                      Even if you obtain a business license, the IRS could challenge your "business" and will look into many factors:
                      Do you operate the activity in a business like manner?
                      Do you comingle funds (personal funds with business funds) or do you separate them with a separate business account?
                      How much time do you devote to the activity?
                      Do you have expertise in the activity?
                      And several other factors would be considered as well. The best way to prove that your activity is profitable is to operate it like a normal business would operate. Separate bank accounts are a must. I would recommend obtaining an EIN as well. Other companies and individuals would treat you better if they know you are running a real business. You can still run the business as a sole-proprietorship, but that doesn't mean you have to run it like a hobby. While I would almost always recommend a business accepting payment forms other than Paypal, I do understand that it cuts into profis. However, you could set up a merchant processing system and process everything online for as low as 7.95 per month with a 15.00 minimum in fees. Are you really paying less than that to Paypal right now? If you aren't paying that much, perhaps this business isn't worth your time.

                      I would be happy to help you, but I would need more information about exactly what you are trying to do. Feel free to contact me:

                      Jeremy Barfield
                      Chief Forum Response Correspondent
                      1 of 1 people found this helpful
                  • Re: general question about starting an online based business
                    exodus125 Newbie
                    thanks for the warm welcome and all the great information. I guess my problem is that I am stuck deciding whether or not this is a business or a hobby. It is barely a form of supplimental income. I do it on my spare time. I have a 9-5 job and manily fiddle on this on some weekends. I want to do things as simple as possible, but at the same time, I do not want to be breaking any laws.