| New ecommerce entrepreneurs can find them | | | | from PayPal to your bank to QuickBooks simply |
| confused and confounded by the tax and | | | | by typing a few keys or clicking your mouse a |
| accounting requirements of their venture. And | | | | few times.Tip #4: Hire a Payroll Service Before |
| that's a shame: If someone's spotted a great new | | | | Hiring EmployeesMany successful ecommerce |
| category and successfully built a web presence, | | | | business owners can run their operations without |
| heck, that someone shouldn't find themselves | | | | employees. And if that's true for you, hey, |
| bogged down with the accounting minutia. The | | | | congratulations. If and when you do need |
| entrepreneur should focus on increasing traffic, | | | | employees, however, don't try to handle the |
| expanding margins, and growing cash profits.With | | | | payroll yourself. Oursource the payroll to one of |
| that in mind, I offer up the following tax and | | | | the large payroll service bureaus like ADP, Payroll, |
| accounting tips:Tip #1: Don't IncorporateA true | | | | or QuickBooks.These services are expensive. |
| corporation-whether a C corporation or an S | | | | Figure $1000 to $2000 per year. But the services |
| corporation-saddles your business with more | | | | let you avoid the bookkeeping nightmare called |
| complicated tax accounting and a bunch of state | | | | payroll and prevent you from getting into payroll |
| filing requirements. You don't want to deal with | | | | tax trouble.Tip #5: Consider S Corporation Status |
| this redtape-or at least not until you're | | | | After You're ProfitableI've written and talked |
| profitable.Instead, operate your business as a sole | | | | much about how S corporations save taxpayers |
| proprietorship. If you're concerned about legal | | | | money and how the right way to set up an S |
| liability protection, note that you can setup a | | | | corporation is first create a limited liability |
| one-owner limited liability company, or LLC. A one | | | | company and then ask the IRS to treat the LLC |
| owner LLC is treated as a sole proprietorship for | | | | as an S corporation for tax purposes.Let me |
| income tax purposes.Tip #2: Start Your Business | | | | review the basics here again, however. Suppose |
| Before Making InvestmentsExpenditures you | | | | that you're making $90,000 a year off your web |
| make before you're actually in business-in other | | | | site. If you just treat your business as a sole |
| words, before you've got a business license and | | | | proprietorship-or an LLC treated as a sole |
| before you're selling or trying to sell your | | | | proprietorship-you might pay $12,000 in income |
| stuff-aren't very deductible.Specifically, you can | | | | taxes on the $90,000 and then another 15.3% |
| probably deduct the first $5,000 of these | | | | self-employment tax, or roughly $13,500 on the |
| expenses. But any amounts in excess of the | | | | $90,000.If you set up an LLC and have the LLC |
| $5,000 must be amortized over the next fifteen | | | | treated as an S corporation, you'll still pay the |
| years.What this means is that you want to start | | | | same $12,000 in income taxes. But you'll only pay |
| your business before you start spending money | | | | the 15.3% self-employment tax on that portion of |
| on advertising, training, web development, | | | | the profit that you categorize as wages. If you |
| accountants and lawyers and so on.Tip #3: | | | | categorize, say, $50,000 of the profits as wages, |
| Automate Your Bookkeeping & AccountingBy | | | | you'll pay $7,500 in self-employment taxes. (The |
| law-and some people don't know this-you're | | | | other $40,000 in remaining profits, by the way, |
| required to maintain an accounting system that | | | | gets paid out as a dividend-like "distribution.")Note, |
| lets you clearly measure your income. As a | | | | then, that the S corporation saves you roughly |
| practical matter, this means you need to use a | | | | $6,000 every year. Sweet, right?Texas LLC |
| product like Quicken or QuickBooks.But you ought | | | | formation expert Stephen L. Nelson CPA has |
| to go one better than simply using desktop | | | | written more than 150 books. Formerly an |
| accounting software. Make sure that you're taking | | | | adjunct tax professor at Golden Gate University, |
| advantage of online banking and bill payment | | | | Nelson is also the author of QuickBooks for |
| features which integrate your accounting system | | | | Dummies.Copyright © by 2006 by Stephen |
| with your banking. As much as is possible, for | | | | L. |
| example, you want to be able to move money | | | | |