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Making Your Business Legal By, Kristin Thomson and Jenny Toomey Simple Machines Records We get a lot of questions about registering as a legal business. We won't presume to tell you what to do, but we can tell you what we did. When we began Simple Machines we planned to put out 6 compilation 7" releases. We considered the label a hobby, and since we weren't planning on becoming a legitimate business, so we didn't register as one. We did keep track of all our costs, however and we kept copies of all of our receipts. This way we could prove how little money we made if the tax collectors came around. Two years into the project we got the chance to put out the Lungfish record. At this point we were pretty sure that we wanted to try our luck as a "real business". It's really pretty easy. Look in the blue pages of the phonebook for the business license office or treasurer of your city/county. Either stop by their office or have them mail you a business license application. There's usually a small fee and some paperwork to do, but it's pretty straightforward. You'll also need to check on the zoning for your county. Many places allow mailorder or small businesses to be run out of private homes, but there are specific rules about setting up a retail business. We're considered a wholesale/mailorder company, which is fine in Arlington, but it varies from town to town. In the worst case scenario you can apply for exemptions. You will also have to decide what kind of business to create. There are basically four options for registering your business. In a nutshell they are 1) sole proprietorship, where one person takes sole financial responsibility for the profits and losses; 2) a partnership (that's what we are) which means that we equally share the financial responsibility for Simple Machines or; 3) a corporation. This takes more legal work and will be more expensive to set up, but if you are going to be a big business it may be preferable because it protects you as a person from debt that you may incur as a business. You can also apply to be registered as a non-profit or a not-for-profit. These options are complicated and are based on the assumption that you have goals other than making money. At the same time you'll need to clue in the US government that you exist by registering with the Internal Revenue Service and applying for a tax ID number. Most libraries have copies of the form, and there's IRS offices everywhere. Of course, once you register you are tax liable, but if you make under a certain amount per year or if you can show a loss, then you won't owe anything. Once you begin to make money, you might want to enlist the services of a professional accountant to do your taxes. It may seem pricy (like $500) but it is a genuine expense that you can write off, and they can really help you organize your returns, find all the loopholes and protect you in the case of an audit. Notes: This paper is an excerpt from Simple Machines Records' publication An Introductory Mechanics Guide to Putting Out Records, Cassettes and CDs.
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