If you sell things online that you have made at home, you essentially have a sole proprietorship even if you don't think of it as a "business." It's the smallest form of business that exists in the United States, and it's both very easy to start and a great idea if you want to run your own small business. One of the main hurdles you'll struggle with at this point is business bookkeeping, both in the name of becoming more efficient and as far as tax preparation. Knowing what it takes to set up your sole proprietorship will make utilizing free online accounting tools for tax prep much easier, and probably help you make better business decisions.
A sole proprietorship is exactly what it sounds like: a one-person business with you at the head. As far as the IRS is concerned, and that's one of the most important reasons to understand business classifications, you stop being a person with a hobby and become a business when you cross a very low threshold for profit. There are no formal or legal steps to become this kind of business. Conduct business, and you've met all the requirements. This means that any money you make from your activities counts as income. So if there's any chance you'll make more than a few hundred dollars with this business, you need to start tracking expenses and income, preferably with a free online accounting tool. If you don't track expenses, you won't be able to deduct them, so you'll be taxed on the retail income you make on sales, even though you had to pay for the materials you used to make those products - a legitimate and deductible business expense.
What if you want more? There are advantages and disadvantages to changing to a more complex business type like an S-Corp or a Limited Liability Corporation (LLC). Everything is simpler for small businesses when they stay sole proprietor: taxes, tax prep, wages, managing finances, and money handling. You can use your own money for the biz and use its profits for your personal expenses without much trouble. On the other hand, you're completely liable for any legal problems, so if your product prompts a lawsuit, your house is on the line. And being an LLC solves this problem - the liability is limited. An S-Corp makes it easier to raise capitol because it gives investors some assurance you won't just walk away with the money.
The transition from making necklaces in your free time and selling them to tracking income and expenses with free online accounting tools to deciding about the type of business you want to run can happen very quickly. It's important to understand what all the different options are and what they will mean for you and your business.
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Free Online Accounting Is Perfect for the Smallest Small Businesses. But They Still Need to Understand the Implications of Being Sole Proprietors. Learn More at http://www.outright.com
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