I want to start a business online selling fashion jewelery and gifts online. I wont have physical inventory because I am going to be dealing threw drop shipping. To be able to deal with the wholesalers i need a TIN OR EIN but that opens the doors to CA LLC tax laws that say I will need to pay $800 a year in taxes. Does this apply to my e business?
3 Answers from Attorneys
If you are just starting out, and one of your primary concerns is not paying the $800 tax, perhaps you should consider running the business as a sole proprietorship (even get a DBA). You can still obtain an EIN.
Thomas is correct. You can operate yor business as a sole proprietorship without the formal legal enttity of an LLLC. Doing so exposes you to personal liability for problems with the business, but you do avoid the $800 minimum tax and the separate tax return filings. Most businesses do start as sole proprietorships, then move to more formal business entities when more successful. While operating as a sole proprietorship, you can use your own social security number as your EIN ( Taxpayer Identification Number).
Note that when someone gets pierced by the poison earring, you will get sued personally. When this worries you enough, it's time to seek counsel and form an LLC.
Also, the tax on an LLC doesn't stop at $800 a year. LLCs pay an additional state tax that works like a tax on gross receipts......see Revenue & Taxation Code section 17942. If your sales are likely to be small, say under $100,000 a year, this isn't a big factor. However, the tax is one reason owners of apartment buildings and supermarkets might prefer to be organized as sub-S corporations rather than as LLCs. On the other hand, LLCs may be better if you expect losses or will have co-owners and want to split income disproportionately to ownership. Get a couple of the self-help law books in paperback format that are published for those wanting to start new businesses. Be sure to select ones that are written for California. Example: "How to Form Your Own California Corporation" by Anthony Mancuso and published by Nolo Press.
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