PLEASE NOTE: The following information is for the United States. If you reside in a different country, check the tax requirements for that country.

STATE TAX
If the state a business is physically located in has a state income tax, a business owner must usually register and obtain an employer identification number from the state Department of Revenue or Treasury Department. If the business engages in retail sales, the owner usually must obtain a sales tax license. If a seller’s connection with a state involves clear physical presence, such as the presence of the business itself, then the seller can be required to collect sales tax and remit it to the state.

BUSINESS TAXES
The form of business you operate determines what taxes you must pay and how you pay them. The following are the four general types of business taxes.
• Income Tax – All businesses except partnerships must file an annual income tax return. Partnerships file an information return. The form you use depends on how your business is organized. Refer to Business Structures to find out which returns you must file based on the business entity established.

The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. An employee usually has income tax withheld from his or her pay. If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. If you are not required to make estimated tax payments, you may pay any tax due when you file your return.

• Self-Employment Tax – Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.

Generally, you must pay SE tax and file Schedule SE (Form 1040) if either of the following applies:

1) If your net earnings from self-employment were $400 or more.
2) If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108.28 or more in wages from the church or organization.

• Employment Taxes – When you have employees, you as the employer have certain employment tax responsibilities that you must pay and forms you must file. Employment taxes include the following:
1) Social security and Medicare taxes
2) Federal income tax withholding
3) Federal unemployment (FUTA) tax

•Excise Tax – In most cases, an Internet business will not be subject to excise tax.

VAT
In addition, you may be required to collect VAT (Value Added Tax) if you sell to countries in the EU.

No matter what product or service you plan on selling, there are some basic steps you should follow when setting up an on-line business.

1. You must decide on a business model.
You need a business model so you know how to set up your business. This is a vital step as you need to know exactly what you are going to do, i.e. what business model you will follow, before you can plan and build a website.
2. You must find or create a product or service that people are willing to pay for.
Note the “willing to pay for” part of this step. You can create the world’s best product but if no one is willing to buy it, your product is worthless. Be sure to conduct thorough research to find out if your product or service will sell before spending countless hours creating it.
3. Design a website or blog to sell your product or service.
You need some way of informing potential customers that your product or service exists. By building a website or blog, you can display your product or service, tell your prospects about the benefits of purchasing your product or service and collect payments.
4. Choose and register a domain name and subscribe to a hosting service.
Both domain name registration and a hosting account are very reasonably priced. You should be able to set up your domain name and hosting service for less than $20. However, you will need to pay the monthly hosting fee. You will only need to pay the domain registration on a yearly basis.
5. Lastly, you will need to drive traffic to your website.
Choose at least 3 different methods that will generate traffic to your site. Then, work each one every day. You could choose from article marketing, PPC (Pay Per Click), forum marketing, link exchanging, e-zine advertising, etc.

Decide on a business model based on your goals. While there are many business models, you business will probably follow one or more of these:
1. You will create your own products or services. If you really want to be successful, this is the most lucrative business model. This is also the business model that most successful marketers follow.

2. You will sell other people’s products or services. This is also known as affiliate marketing. Most marketers do some affiliate marketing to generate additional income.
Affiliate marketing is a good way to bolster your income while you create your own suite of products.

3. You will create membership sites where you offer various products and/or servicers for a monthly fee. Many marketers also include memberships in their overall business plan to generate recurring income.

4. You will create content sites that depend on advertisements such as Adsense for income. While you can make money only through Adsense, you will need many websites or blogs that attract a lot of visitors in order to make a significant amount of money with Adsense alone.
Many marketers also add products from Clickbank, Amazon, or similar sites to their content sites. However, you will need to follow the Terms of Service for each advertising network as some will not allow you to mix similar ads on the same webpage or website.

A blog is also considered a content site but since you are doing the posting, you can add recommendations in your posts or, at the end of an article, recommend a related product.

5. You will ship physical products. This could be an e-book shipped on DVD or even a multimedia course consisting of DVDs, worksheets, reports, etc.

Your business model may consist of more than one of these models. For example, you may write and sell e-books but also promote other marketer’s products as an affiliate. You may even have one or more membership sites, have a few content sites, and even sell physical products.

But, no matter what, you success will depend on you choosing the right business model(s) for your business.

PLEASE NOTE: The following information is for the United States. If you reside in a different country, check the legal requirements for that country.

When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you need to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.

Most new on-line businesses start out as a sole proprietorship. However, as a business grows, it may be more advantageous tax wise to choose a different business entity.

• Sole Proprietorship – A sole proprietor is someone who owns an unincorporated business by himself or herself. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation.

• Partnership – A partnership is the relationship existing between two or more persons who join together to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.

A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it “passes through” any profits or losses to its partners. Each partner includes his or her share of the partnership’s income or loss on his or her tax return.

• Corporations – In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation’s capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.

The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.

• S Corporations – S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income.

To qualify for S corporation status, the corporation must meet the following requirements:
o Be a domestic corporation
o Have only allowable shareholders including individuals, certain trust, and estates and may not include partnerships, corporations or non-resident alien shareholders
o Have no more than 100 shareholders
o Have one class of stock
o Not be an ineligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.

• Limited Liability Company – A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.

Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.
A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information. There are special rules for foreign LLCs.

The US federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file a tax return as a corporation, partnership or sole proprietorship.

An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business entity classification. A business with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership, and a business entity with a single member can choose to be classified as either an association taxable as a corporation or disregarded as an entity separate from its owner, a “disregarded entity.” Form 8832 is also filed to change the LLC’s classification.

In addition to hosting, a domain name, etc., you may need the following legal licenses and documentation if your business is located in the United States. Please Note: ALWAYS contact a legal authority concerning your legal obligations, regardless of where you live.
1. Tax Identification Number – A federal tax identification number, also known as an Employer Identification Number (EIN) or Federal Employer Identification Number (FEIN), is a federal identification number issued by the Internal Revenue Service to identify a business entity. A sole proprietor who does not have any employees and who does not file any excise or pension plan tax returns is the only business person who does not need an employer identification number. In this instance, the sole proprietor uses his or her social security number as the taxpayer identification number.
2. Business License – A business license is a legal document issued by a local governmental authority that authorizes a person to conduct business within the boundaries of the municipality where s/he does business. Many states have established small business assistance agencies to help small businesses comply with state requirements. In most cases, businesses operating from the home do require a business license and must comply with the municipality’s zoning code.
3. Fictitious Name Certificate – A fictitious name certificate, also known as a DBA (Doing Business As) is a document, usually filed with a state agency, which is required to operate a business using an assumed name or trade name (essentially, any name other than the full, formal name of the individual or company).

4. Home Occupation Permit – A Home Occupation Permit is issued by a municipality to allow residents the opportunity to conduct a business and/or provide professional services out of their home, provided the use is clearly incidental or secondary to the use of the home for residential purposes.
5. Tax Registration – If the state a business is physically located in has a state income tax, a business owner must usually register and obtain an employer identification number from the state Department of Revenue or Treasury Department. If the business engages in retail sales, the owner usually must obtain a sales tax license. If a seller’s connection with a state involves clear physical presence, such as the presence of the business itself, then the seller can be required to collect sales tax and remit it to the state. In addition, you may be required to collect VAT (Value Added Tax) if you sell to countries in the EU.
6. Employer Registrations – As soon as you begin employing one or more people, you must register as an employer and must usually make unemployment insurance contributions as well as withhold taxes from your employee(s) pay check(s). Your workers may be your employees or they may be self-employed. In general, people working for you are employees if you are controlling how and when they do their work. If they are self-employed, you will not need to make unemployment insurance contributions or withhold taxes.