A sole proprietorship is the simplest form of business for RVers to set-up. Here's an example of an RVing couple who did that, along with advice and information from Martin Shenkman, CPA, JD.
Structuring a Business When Going from a Hobby to a Business
by Martin Shenkman and Judy Justice
The step from hobby to business can easily happen. There is a couple that turned the wife's hobby of sewing applique items into a business. The couple had a travel trailer and owned vacation property near a popular vacation spot that had gift shops in the area. They sold wholesale to the gift shops and enjoyed the benefits of travel with a profitable business. They made a point to drop merchandise off when they were in the area. They also did large events in the area where they sold their products retail.
This RVing couple chose to be a sole proprietorship when they started their business. In this particular situation, the couple really didn't see much liability risk to justify the cost and hassle of setting up an entity. They had no employees, only they worked in the business, and they didn't see that changing. They delivered products to the stores themselves; there were not any intermediaries. No one came to their recreational vehicle; they went directly to their customers.
Since they were a sole proprietorship, they reported their business income (or loss) on their personal income tax return, Form 1040, Schedule C. They had to file Form SE to calculate their Social Security taxes and Form 1040-ES to pay estimated taxes on their anticipated profits.
The couple uses Form 4562 to claim a deduction for depreciation or amortization, to make the section 179 election to expense certain property, and to provide information on the business/investment use of cars and other listed property. These forms and rules were used to claim deductions on the equipment they purchased to fabricate and package their appliqué items.
Here's more on starting a business as a sole proprietor….
To get some reasonable advice online, prior to running up a costly bill with a lawyer and CPA, skim through IRS publications available free on line. See http://www.irs.gov/businesses/small/article/0,,id=99083,00.html for a list of many of the practical publications for small or new businesses.
Even if a sole proprietorship sounds simple, you may still have to get an employer identification number (EIN) from the IRS. Go to the IRS website for information on how to obtain a tax ID number. http://www.irs.gov/businesses/small/article/0,,id=98350,00.html.
Review the chart on the IRS website at http://www.irs.gov/businesses/small/article/0,,id=97872,00.html. The chart suggests that you may not need a tax ID number if you don't hire employees and have a relatively simple business.
Carefully consider the advantages of having a tax identification number for your sole proprietor business. It may help you keep your business records independent of your personal accounts and records. You can open the business bank account under your business EIN (sometimes referred to as a TIN, or Tax Identification Number) and not disclose your Social Security Number to vendors. Also, if you initially don't have employees or otherwise have to have an EIN, but later you need to, think of the hassle of changing all your accounts and paperwork to the new EIN. Wouldn't it be easier to start with an EIN?
You can obtain an EIN application online and apply online. Think very carefully how you'll answer the questions. Some very basic and seemingly inconsequential questions can have significant legal and tax consequences. If you're unsure, get a pro to help. Once the application is completed, the information is validated during the online session, and an EIN is issued immediately. The online application process is available for all entities whose principal business, office or agency, or legal residence (in the case of an individual), is located in the United States. The principal owner must have a valid Taxpayer Identification Number (Social Security Number) in order to use the online application. You'll have to give an address. This could have significant state income tax consequences as well.
Be sure to follow up with your insurance agent to assure that your sole proprietor business is covered.
A sole proprietorship is the simplest form of business structure, because it is really a non-structure. It's just you. The downsides are that you have no protection from lawsuits relating to the business and some folks don't take a business as serious if it isn't a corporation or limited liability company.
When you make the decisions as to whether or not you really need a business, bear in mind that the income you earn doesn't necessarily provide a measure of the risks you are taking. You can be sued for more than you earn.
Martin M. Shenkman, CPA, Esq. sponsors a free legal website LawEasy.com.
Martin is an RVer with a special cause. He is an avid fundraiser for the National Multiple Sclerosis Society and The Michael J. Fox Foundation For Parkinson's Research. See his RV4TheCure.com website for how you can help him fight MS. Besides RV business tax and legal information, he will share some of his RVing and fundraising experiences with us.
Judy Justice has an MBA in Management and an MBA in Financial Management. She teaches online and operates a business with her husband while RV'ing.
Caution: This article and other columns can never substitute for professional legal, tax, and accounting guidance. These columns can provide only broad general advice, which may not apply to your situation. The rules differ substantially from state to state. Tax, business, and other laws change rapidly over time so there can be no assurance that the information in this column is current. The best approach is to review the ideas in this article with your own CPA and attorney. The application of general tax and legal principles to some of the unique facts presented by RV working is particularly complex and there is little specific law providing guidance to rely upon.
Go to the page listing all the articles on this website written by Martin M. Shenkman, CPA, MBA, JD.
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