December 20th, 2006

Setup and Tax Advice for New Firms

PR professionals who strike out on their own face legal and accounting issues but they are by no means daunting. A sole proprietor will have far fewer issues than a group of PR people starting a business. Sole proprietor may make sense if the business is small and the owner has few assets. If you just do business under your own name, there's no need even to file a DBA (Doing Business As) form with the state or county.

You would have to do something extra on your income tax return.

You will have to download Schedule C from the Internal Revenue Service website. This is for reporting income and expenses of your new firm ("Profit and Loss from a Business or Profession").
If your income exceeds a certain amount each quarter, you will have to file an estimated tax return each quarter.
You could be assessed penalties if your estimate falls too far short of your actual income.

Sole Proprietors Face Liability

A corporation and a Limited Liability Company protects an owner's personal assets from being seized by creditors. This is the main reason why business owners form an entity. This may not be a big worry for someone starting a business soon after college and who does not have many assets to protect.

If you decide to do business other than under your own name, you will have to file a DBA which could only cost a few dollars. In New York, the filing is at the County level and the cost is $120.

But first you have to do a search of the records see if anyone else is using that name. You could be forced to change your name if someone else already has it and you would probably receive a stiff letter from a law firm demanding you stop stealing their identity and good will.

You would have to do an internet search including searching the U.S. Patent and Trademarks Office site (www.uspto.gov) and also the website of your state.

Don't start printing up letterheads and cards with a name other than your own until a check is made.

For a recent college graduate, operating under your own name is the cheapest way to go. The protection of a corporate umbrella may not be needed, at least at the outset.

You could consider filing for a federally registered Trademark for your business. The cost is about $350 per category of goods or services. but legal fees could up the cost to $1,000 to $1,250.

If you decide to incorporate, there are three routes–regular corporation; Subchapter S, and Limited Liability Companies (LLC's).

With a regular corporation, taxes are paid according to the profits made by the corporation. Your company will receive its own tax ID number which will also serve for collection of taxes.

PR services are not taxed but sale of goods such as books or premiums would be taxed.

With Subchapter S, income is generally taxed at the owner's personal rate, at least for federal tax purposes.

A single member LLC is generally "ignored" for federal income tax purposes and taxed like a sole proprietorship.
If you decide to incorporate, you will need advice from a lawyer and accountant to make sure all the rules are obeyed since they are complex.

Author: Gavin McElroy

This article first appeared in the Dec. 20, 2006 edition of the legal column in www.odwyerpr.com.