🏪 Stuff Every New Business Owner Should Know: Training Guide

Starting Without Registration

If you start selling and do not register as another business type, the law treats you as a sole proprietorship. You can still use a trade name, but that does not create a separate legal entity. The owner is personally responsible for business debts.

A sole proprietorship can be a good fit for low-risk work and for testing an idea before forming a more formal entity. Because there is no separate entity, personal assets like your house and savings can be reached for business debts.

General and Limited Partnerships

The IRS defines a partnership as two or more people in business together. Each partner contributes money, property, labor, or skill and shares in profits and losses.

In most states, a general partnership can form without a written agreement. Courts may look at how people act as co-owners for profit, even if they did not intend to create a legal partnership.

In a general partnership, partners usually have unlimited personal liability. A limited partnership has at least one general partner with unlimited liability, while limited partners have limited liability.

A limited liability partnership, or LLP, is designed to limit every owner's liability. In most states, an LLP can protect one partner from responsibility for another partner's actions.

How Partnerships Are Taxed

A partnership does not pay federal income tax on its profits. Instead, profits and losses pass through to the partners, who report their shares on their personal returns.

Each partner receives a Schedule K-1 from the partnership showing their share of income or loss. Partners are not employees of the partnership, so they should not get a Form W-2 from it.

LLC Basics and Default Tax Treatment

A limited liability company, or LLC, is a business structure allowed by state statute. You form it by filing with your state, not with the IRS. The IRS then decides the federal tax classification.

By default, a one-owner LLC is disregarded for income tax. The owner usually reports its business on Schedule C, similar to a sole proprietor. For employment and some excise taxes, the single-member LLC is still a separate entity.

By default, a domestic LLC with two or more members is taxed as a partnership. It usually files Form 1065 and sends each member a Schedule K-1.

An LLC can file Form 8832 to choose C corporation taxation. The Form 8832 election generally cannot take effect more than 75 days before the date it is filed. Separately, an LLC wanting S corporation status files Form 2553, and that filing also counts as electing corporate classification. The 75-day rule is not the Form 2553 deadline.

Corporations, C Corp Tax, and Limited Liability

A corporation has an independent life separate from its shareholders. If a shareholder sells shares, the corporation continues doing business. It can make a profit, pay tax, and be held legally liable separately from its owners.

An LLC usually protects owners' personal assets like a house and savings if the business is sued. This protection is not absolute, and a court can set it aside in serious cases.

Piercing the corporate veil means a court makes owners personally liable for the company's debts. Courts usually have a strong presumption against piercing, but misconduct like mixing personal and business money can support it.

A C corporation pays tax on profit when earned. When it pays dividends, shareholders pay tax again on those dividends, so the profit is taxed twice. Shareholders cannot deduct the corporation's losses.

Federal law sets the C corporation income tax at a flat 21 percent of taxable income. A C corporation files Form 1120.

Electing S Corporation Status

A corporation or an eligible LLC files Form 2553 to elect S corporation status. All shareholders must sign their consent. Registering with the state does not make an S corp; the S election is a separate IRS step.

To choose S corporation status for a tax year, submit Form 2553 within 2 months and 15 days after that tax year begins, unless you file in the prior year. A calendar-year business has a deadline around March 15.

S corporation profits pass through to shareholders' personal returns. An S corp can still owe entity-level tax on certain built-in gains and passive income.

Most states follow the federal S corporation election, but not all. Some states treat an S corp as a C corp or tax profits above a limit. Check your state before choosing.

S Corporation Shareholder Limits and Owner Pay

An S corporation can have no more than 100 shareholders. A married couple, and all members of a family, count as one shareholder for that limit, which helps family businesses with many relatives.

An S corporation can have individual owners, some trusts, and estates. What it cannot have is a partnership, another corporation, or a nonresident alien as a shareholder.

To stay an S corporation, the company can issue only one class of stock. Different shares may have different voting power, but every share must have the same right to dividends and to money if the company closes. That means an S corporation cannot offer preferred shares with a payment priority.

An S corp owner who works in the business must be paid reasonable compensation as wages before taking non-wage distributions. The IRS can reclassify distributions as wages if the salary is too low.

State Formation First, Then EIN

Form your corporation or LLC through the secretary of state before applying for an Employer Identification Number, or EIN. An EIN is a federal tax ID, not the state filing that creates the entity.

The IRS issues EINs for free. You never have to pay a fee to get one. Some websites look official and charge a fee to file the same free form for you.

The EIN application is Form SS-4. If you apply online and are approved, you get your EIN immediately. The online tool is not open 24 hours a day, and you can get only 1 EIN per responsible party per day.

If you apply by mail, send Form SS-4 at least 4 weeks before you need the EIN. By fax it takes about 4 business days. If the EIN has not arrived when a return is due, the IRS says file anyway and write Applied For.

A sole proprietor needs only one EIN, no matter how many businesses or trade names they run. A sole proprietor with no employees often uses a Social Security number, but hiring employees is a common reason to get an EIN.

A one-owner LLC with no employees and no excise taxes does not need its own EIN for federal tax. It can use the owner's tax ID, but a bank may still ask for an EIN.

Registration Details and Doing Business in More States

How and where a business registers depends mainly on its structure and location. Most states accept business formation filings through the secretary of state, a business bureau, or a similar agency.

An LLC is commonly formed with articles of organization. A corporation is formed with articles of incorporation. Exact names and required details vary by state.

A registered agent receives official and legal documents for a company. The agent must generally be located in the registration state, and many owners hire a registered-agent service.

A business formed in one state is domestic there and foreign elsewhere. Active business in another state may require foreign qualification, often through a Certificate of Authority. Some states also ask for a Certificate of Good Standing from the formation state.

A DBA, meaning doing business as, lets a person or entity operate under a name different from its legal name. DBA registration may be handled by a state, county, or city, and by itself does not give legal name protection.

Licenses, Permits, Annual Reports, and BOI

A business generally needs a federal license or permit when federal law regulates the activity. Regulated fields include examples such as aviation, alcohol, broadcasting, and commercial fishing. State and local permits depend on the business's activities and location.

Some permits expire and need renewal. Put permit renewal dates on a compliance calendar, along with each issuing agency and expiration date. The SBA notes that renewal is often easier than applying for a new license.

Some states require a recurring annual report to keep an entity in good standing. Annual-report duties depend on the state and entity type, so check the official schedule.

Registering in a second state does not cancel the first state's filing. The business could owe fees or reports in both states, and ending registration in a state often requires a separate withdrawal filing.

As of 2026, a new LLC formed in the United States does not file a BOI report with FinCEN. U.S. companies are exempt, and the final rule made that permanent in August 2026.

Only companies formed under foreign law and registered to do business in a U.S. state still report BOI to FinCEN. A foreign company newly registered in a U.S. state has 30 calendar days after notice that registration is effective to file.

Sole Proprietor Income and Self-Employment Tax

A sole proprietor reports business profit or loss on Schedule C, attached to their personal Form 1040. There is no separate business income tax return for a sole proprietorship.

Self-employment tax is 15.3 percent. It combines 12.4 percent for Social Security and 2.9 percent for Medicare, and it is on top of regular income tax. Above the yearly Social Security wage base, the 2.9 percent Medicare part continues.

If net self-employment earnings are $400 or more, you generally must pay self-employment tax. Net means after business expenses, and the rule applies even if you have another job.

A self-employed person can deduct the employer-equivalent portion of self-employment tax, about half, when figuring adjusted gross income. This lowers income tax, not the self-employment tax itself.

Estimated Tax Payments

Sole proprietors generally use Form 1040-ES to figure estimated tax payments because no employer withholds tax from their profit. You can pay electronically.

Individuals generally make estimated payments if they expect to owe $1,000 or more after subtracting withholding and refundable credits. Do not mix this up with the $400 self-employment tax threshold.

The first estimated tax payment is generally due April 15 for income earned January 1 to March 31. The second period covers only April and May, with a due date of June 15.

The last payment for a year, covering September to December, is due January 15 of the following year. If you file your full return and pay everything by January 31, you can skip the January 15 payment.

Most taxpayers avoid the underpayment penalty if they pay at least 90 percent of this year's tax or 100 percent of last year's tax, whichever is smaller. Last year's return is a known number, so many use it as a guide.

Sales Tax, Franchise Tax, and Resale Certificates

In states that have one, a franchise tax usually taxes the privilege of operating as an entity. A franchise tax is not limited to businesses that sell franchises, and states define their own calculations. Texas, for example, calls its franchise tax a privilege tax.

Before collecting a state's sales tax, a seller needs the required state sales-tax account, permit, or certificate. The name and timing vary by state. New York calls its sales-tax authorization a Certificate of Authority.

Sales tax is commonly charged to the purchaser at the sale, and the registered seller reports and remits the collected amount under state rules. A marketplace facilitator may be treated as the collecting seller for sales it facilitates.

The Supreme Court's 2018 Wayfair decision rejected the rule that a seller must be physically present before a state can impose sales tax collection duties. A sufficient connection, including economic nexus, can now matter. There is no single nationwide nexus threshold, so check each state's tax authority.

Use a resale certificate for goods bought for resale, not for supplies you will consume. Materials that become a physical part of a product held for resale may also qualify. A seller should keep customers' resale certificates and related purchase orders, because a late accepted certificate may not protect the seller from tax liability.

Five states have no state-level general sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Even these states impose narrower excise taxes, and Alaska allows local sales tax. Products and services are not taxable the same way in every state, so check the destination state's rules.

Contractor Forms, Home Office, and Business Miles

For 2026, Form 1099-NEC reporting for nonemployee services generally begins at $2,000 paid to a nonemployee. Form 1099-NEC is generally due to the IRS by January 31.

Before paying a contractor, collect Form W-9 so you have the correct taxpayer ID for the 1099. The W-9 is kept by the business, not mailed to the IRS. The W-4 is for employees' withholding, and the I-9 checks an employee's work eligibility.

To deduct a home office under the general rule, the space must be used regularly and exclusively for business and meet a business-place test. Separate rules cover daycare and inventory storage.

The simplified home office method allows $5 per square foot, up to 300 square feet. The regular method uses actual home costs like utilities and rent.

Driving between home and your main place of work is personal commuting and not a deductible business expense. Drives from work to a client or supplier can be business miles, so keep a mileage log.

Separate Business Bank Accounts

Open a business bank account when business money starts moving. This creates a clean place for receipts, payments, and records from day one.

Do not share the owner's personal checking account with the business. Separate accounts make income, expenses, and owner transfers easier to identify and help preserve the distinction between owner and entity.

Banks commonly request an EIN and business formation records to open a business account. A sole proprietor may sometimes use a Social Security number instead of an EIN.

Cash and Accrual Accounting

Under cash accounting, income is generally reported when the money is received, and expenses when they are paid. It focuses on cash movement rather than when amounts are earned or incurred.

Under accrual accounting, income is generally reported when earned, even if paid later, and expenses when incurred. Inventory rules can affect which accounting method a business must use.

Tax calculations and business books should use the same accounting method. The method must clearly show income. A person with separate businesses may use different methods if each business keeps complete, separate books.

A business cannot freely switch accounting methods after choosing one. The IRS generally requires approval so that shifts in income or deductions are handled consistently.

Supporting Records and Retention

Keep receipts, invoices, deposit slips, and canceled checks because they document business transactions. Organize them by year and income or expense type. Proof of payment alone may not establish that a cost qualifies as a deduction.

The IRS does not usually require one specific bookkeeping system. A clear, suitable paper or software system is allowed, as long as it clearly shows income and expenses and preserves required support.

The IRS generally says to keep business tax records for three years for ordinary income-tax records, but important exceptions can require longer or indefinite retention. A large omission of gross income can produce a six-year federal limitations period.

Employment tax records generally must be kept at least four years after the tax becomes due or is paid, whichever is later. Property records should be kept until the disposal year's limitations period expires, and for a nontaxable exchange, old property records may need to follow the new property.

Core Business Insurance Policies

General liability insurance protects a business from claims of bodily injury or property damage to others, including libel, slander, and the cost of defending lawsuits. It is meant for any business.

Professional liability insurance protects service businesses against claims of errors, negligence, or malpractice. General liability usually does not cover a mistake in your professional advice. Product liability insurance covers losses when a product you make or sell is defective and hurts someone.

Commercial property insurance protects a business's own buildings and equipment from events like fire, storms, and vandalism. Liability insurance pays for harm you cause to other people, not your own property.

A business owner's policy, or BOP, bundles typical small business coverages into one package, which can simplify buying and save money. A BOP usually does not include commercial auto, workers' compensation, or professional liability.

Most states require employers to carry workers' compensation insurance for work-related employee injuries, but employee-count thresholds and exemptions vary. A personal auto policy usually does not cover a vehicle used for business work, so ask the insurer whether a commercial policy is needed.

Cyber insurance first-party coverage protects your own data, including employee and customer information, and pays costs like legal counsel and data recovery. Third-party coverage handles claims others bring against you.

Contracts and Operating Agreements

An LLC's operating agreement is the governing contract among the members. It can cover how the LLC is managed, how assets are used, and how revenue is shared. Most states do not require one, but it is a critical LLC document.

In most states, a contract generally needs mutual assent, shown by an offer and acceptance, plus consideration. Consideration means something of value exchanged by both sides, such as money for a service.

A promise of a gift with nothing in return usually is not an enforceable contract, because there is no consideration. Paying extra for work someone was already obligated to do usually is not new consideration.

Under the statute of frauds, most states require a signed writing for some contracts, such as land deals and promises that cannot be finished within a year.

Under the federal E-SIGN Act, a signature, contract, or record in interstate commerce may not be denied legal effect solely because it is electronic. Some documents have special rules, and nobody is forced to accept electronic records.

Trademark Basics

Before you pick a brand name, search the USPTO's Trademark Search system. If customers would likely think your goods or services come from the same source as someone else's, the USPTO can refuse the mark.

You can use TM for goods or SM for services even before filing any trademark application. The symbols tell others you claim the mark, but registration gives broader rights.

Use the ® symbol only after your trademark is federally registered with the USPTO, and only for the goods or services listed in that registration. Forming an LLC or buying a domain is not federal registration.

Domain Names

Generic domain names like .com are registered through an ICANN-accredited registrar. There are more than two thousand of them, and ICANN recommends dealing directly with an accredited registrar rather than a reseller.

RDAP was created to replace WHOIS for looking up domain registration data. Since January 28, 2025, most generic domain registries and registrars no longer must offer WHOIS.

For a generic domain like .com, the maximum unexpired registration term is ten years. Your registrar and your web host or email provider can be different companies.