In this transcript from a video by Steven J Wick & Associates PC, Steve Wick discusses key fundamentals around defining a business, separating personal and business finances, and choosing the right business structure from an accounting and tax perspective. The video focuses on practical Small business tax planning considerations for entrepreneurs and independent contractors in Fort Collins, especially those navigating sole proprietorships, partnerships, and LLCs.

To learn more about Small business tax planning and how proper planning can help you stay compliant and financially organized, check out our detailed article on small business tax planning strategies in Fort Collins.

This content is intended for general educational purposes only and does not constitute legal or tax advice. For guidance specific to your situation, we strongly recommend contacting a qualified CPA or tax professional.

What Defines a Business vs. a Hobby (00:00:13 – 00:01:07)

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From an accounting and tax point of view, let’s go back even a step further—what is a business, and when are you actually in business? Basically, when you have entered into a venture to make money and sustain yourself, that’s when you’re considered in business. Some people look at it as a hobby versus a business.

For example, a photographer who sells a couple of pieces from a vacation—are they really in a business? That’s a common question. There’s a whole list of requirements the IRS looks at to determine whether you are a legitimate business and not just a business in name only.

It could be a part-time activity alongside regular employment, like fixing cars, repairing fishing poles, or making products. These might start as hobbies, but if they turn into sustained profits, that’s when they begin to qualify as a business.

Business Planning and Operational Readiness (00:01:09 – 00:01:25)

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You really need to have a business plan and a separate checking account. Are you operational? Are you acquiring information to improve yourself and make the venture worthwhile? What is your marketing plan? What is your product, and how are you delivering it?

Separating Business and Personal Finances (00:01:44 – 00:02:45)

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Are you separating your business from your personal finances? You might say, “I’ve only got one checking account, and I don’t care,” but if you’re ever questioned, it muddies the water significantly. It becomes very difficult to determine what is a business expense versus a personal one.

It’s critical to have a separate business banking account and to keep receipts. You must understand what is business and what is personal. For example, if you’re working out of your house, do you have a room used exclusively for business? A spare bedroom, kitchen table, or shared space creates gray areas.

Even something simple like buying paper towels—if you use them both personally and for business, you need to track and separate those expenses carefully. This separation is especially important given the increase in independent contractors in recent years.

Types of Business Structures Explained (00:02:50 – 00:03:56)

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A sole proprietorship is just you—an individual doing business to make money. A partnership is exactly what it sounds like: you and another person going into business together. Technically, even a handshake agreement can create a partnership, although it’s always better to formalize things.

With partnerships, the IRS requires an Employer Identification Number (EIN) because there will be a separate tax filing for the partnership return.

Limited Liability Companies, or LLCs, are often considered the cheapest form of insurance you can have. They provide a level of separation—the corporate veil—between you as an individual and the business. In Colorado, for example, it costs about $50 to organize an LLC and around $10 per year to maintain it with the state.

Conclusion: Small Business Tax Planning Considerations