In this transcript from a video by Steven J Wick & Associates PC, we explore essential information for small business owners about what it means to be “in business,” differentiating between a hobby and a legitimate business, and best practices for sole proprietorships, operational readiness, and business credibility. This video provides Fort Collins accounting and tax advice, focusing on questions like setting up a business plan, separating personal and business finances, and obtaining an employer identification number (EIN).
To learn more about managing your finances and staying compliant, check out our detailed guide on Fort Collins accounting and tax advice for small businesses.
Please note that this video does not constitute legal advice, and we recommend contacting a CPA for guidance specific to your situation.
Transcript
Introduction and Music
00:00:00 – 00:00:15
[Music]
Defining a Business
00:00:15 – 00:01:03
From an accounting and tax point of views, well, let’s go back even a step further. Okay, what is a business and when are you in business? It’s basically when you have entered into an adventure to make money and be sustained. Some people look at it, and this is diverting from this, but hobby versus business, and for example, a photographer that may sell a couple pieces of photography from a vacation or something—are they in a business? That’s really kind of a question.
And there’s a whole litany of things that the IRS requires businesses to do to be in business and to prove that they are a legitimate business and not just a business in name only. Those are really critical in understanding the differentiations between the two. It may be that you truly start out thinking you’re going to have a regular business but don’t.
Sole Proprietorship and Operational Questions
00:01:03 – 00:02:08
A sole proprietorship is “I’m in business to make money, I’m not an employee. I am an independent contractor or I am working to try and make money to live.” That’s a short answer to the whole thing.
It might be a part-time job—like you have a regular employment thing—and then that you’re going for 40 hours a week, and then you’re fixing cars or fishing poles or making those types of things, which maybe could be considered a hobby, but they kind of flip over. And if you’re just kind of making sustained profits, great. So that’s really what the question is—are you operational?
To be in business, you really need to have a business plan, and you should have a checking account. Are you operational? Are you getting information, acquiring information to edit yourself to make it worthwhile or not? Are you separating your business from your personal? Especially with COVID, there’s been a lot of increases in independent contractors.
[Music]
Employer Identification Numbers (EINs) and Business Credibility
00:02:16 – 00:02:51
A sole proprietorship is just you—the individual—doing business to make money. Do you have to have an employer identification number to do that? No, but it’s highly advised because the other option is to have your social security number running around. Do you really want that information out there for the general public? With identity theft being so rampant, I’m very protective of that information.
Having a business identification number is pretty critical. It gives a little more credence or validity to the business that you are trying to act like a real business.
[Music]
Outro Music
00:02:59 – 00:03:06
[Music]
Conclusion: Fort Collins Accounting and Tax Advice
This transcript provides a clear overview of Fort Collins accounting and tax advice for small business owners, including the importance of distinguishing between a hobby and a business, operational readiness, and obtaining a business identification number. By following these guidelines and consulting a CPA, small business owners in Fort Collins can ensure they are compliant, organized, and prepared to grow their business effectively.
