Thread: Why would I start a business?

I'm not even sure that's what it's called...

Right now, for tax purposes, I just include money earned through bellydancing as my personal income. But, since this portion of my income is starting to grow, I was thinking something more formal might be in order - like, becoming an official business (ie: "Bellydance by Daniela").

So, why would I do something like this? Are their tax benefits to being a business, rather than claiming dance income as just plain old income? Am I making any sense?

I hate taxes and talking about money, so please explain this to me as if I am in kindergarten. Thank you!,f::

depending on the type of business entity you chose, there can be huge differences in taxes, liability, etc. a lot will depend on the assets you need to protect, how large your business is, etc.

for example: if you have a large troupe who dances with fire, it might make sense to incorporate for liability purposes.

you can get a consultation with a reputable accountant or two and find out what makes sense for your individual situation.

or you could insist on being paid in cash ;)

but seriously, this is an area where quality professional tax and business advice would be best, IMO

good luck.

Daniela, becoming a business is a lot less formal than you imagine. You already are one.

Anytime you're being paid without having employment taxes withheld, you're a small business (sole proprietorship) as far as tax laws are concerned. When you claim your income from dance, you can also deduct your relevant expenses. You don't have to fill out any forms or anything unless you want to become a corporation, which doesn't make a lot of sense for a typical bellydancer. (the other business form, partnership, doesn't require a lot of paperwork from the gov't either, though it's good for the partners to hammer out an agreement.)

So, you've already started a business as far as the IRS & government are concerned. It's good to know that, because they expect you to follow all relevant laws as a small business person.

You can call your business whatever you like, but if you want to be able to accept checks written out to a business name that doesn't include your full name, you have to file a 'fictitious name' certificate with your county courthouse, and usually there's a requirement to run an ad in the paper announcing who owns the business name.

In MA, I had to get a business license from my city, which was annoying. It's a small city that functions like a village. So I got the license, and the business account. I can accept checks made out to either my given name or my dance name. I have the bank account set up so that my income from dance goes to it, and any expenses that aren't covered by my dance income get "invested" by my personal account.

In terms of taxes, this allows me to track what I'm making and spending for tax purposes. When it's tax season I'll have nice itemized statements that indicate what I've paid where and what I've been paid. It also helps to keep the income from teaching straight.

I'm treating it as a business so that I can make a long term decision down the road whether this is a viable career path, or should it remain a hobby. Keeping track of all this helps to keep it objective for me, I can see in black and white what my intake and output were.

Also, if somebody turns around and tries to get me into trouble by claiming that I don't report my income etc (not that it's likley, but hey, I'm paranoid), I'm covered.

Thanks for the advice ladies. I will talk to my accountant, but he already has me deducting for expenses and such - I didn't know that made me a business! How official I am!

And while I am, for the most part, paid in cash, I'm not talking about the ocassional bellygram that goes unreported. I'm talking thousands of dollars between my cash paying classes and my performances. If I don't claim it, someone is bound to notice sooner or later.

There are some tax advantages. But the main reason is asset protection.

Can you explain that? How can forming a "business" protect my assets? I told you, I don't understand this stuff! You need to explain it to me like I'm in kindergarten!

I think he means forming a corporation. Which is something I've never seen a dancer do -- too much expense & paperwork, your income gets taxed twice, and we don't have a lot of assets at risk so it's not worth it.

Oh, I see. Thanks!

There is a thread on tribe about this

http://bellydancebiz.tribe.net/threa...f-e161273c52a0

Basically you want the business as a separate legal entity so if the business gets sued or something, they can only go after the assets in the business, not your personal assets

There are many different types of corporations. I think the simplest is the LLC but I'm no expert. You should talk to an accountant who deals with business.

Originally Posted by danielabellydance

Can you explain that? How can forming a "business" protect my assets? I told you, I don't understand this stuff! You need to explain it to me like I'm in kindergarten!

Ignatius is making a good point.

It has been 25 years since I researched this - I used to be a member of an investment club, and we researched our options at the time; we chose to become a Subchapter S corporation. So what I'm about to say is 25 years out of date, plus I may be remembering some details wrong, but with luck it'll be enough to help you form some specific questions to research answers to.

Let's say that one of your students injures herself in your class, and sues you, and let's say your insurance doesn't cover all the resulting lawyer fees, court costs, damages you have to pay, etc.

If you are operating as you currently do, you might find that you personally would be on the hook to pay any costs not covered by your insurance. If you don't have the cash to do it, you could be forced to sell your house and car, any retirement savings by you and your husband could be seized, and any wages you might have in a day job could be garnished until all money has been paid. The only way out would be to file personal bankruptcy, which could be done only once in your lifetime under current laws.

If you have separated your dance finances from your personal finances by establishing a subchapter S corporation or other legally separate entity, then only the assets of that business would be at risk in the event of such a financial disaster. So the home in which you live would be safe, your spouse's car would be safe, your retirement savings would be protected, etc. The business itself might go under as a result of the lawsuit, and the business could declare bankruptcy without affecting your personal credit rating or future financial options.

I would expect that your city or county has some sort of local office dedicated to help small businesses get started. I'd advise going to that agency to ask specific questions about different types of businesses (subchapter S vs sole proprietership), tax implications of each decision option, legal liability issues, etc.

As I said above, my comments are based on research I did 25 years ago, and are offered only to help you get enough background to ask informed questions and understand the answers a little better. Use your local small business resources to help you get current, well-informed detail to use in your decision-making, and don't make any decisions based on what I said.