Accounting & Bookkeeping & Small Business Forum

[Ingmar]

Hi there,

A friend of mine is starting up his own business. He already registered himself at the Chambre of COmmerce, and also opened up a business-account at the bank.
Does he need to call the IRS for paperwork, regarding a VAT number and all, or will this be sent to him automatically since he registered at the Chambre ? Is there anything else that we must think of when starting up your own business?

Thanks for your replies.

[RobJ]

Ingmar wrote: A friend of mine is starting up his own business. He already registered himself at the Chambre of COmmerce, and also opened up a business-account at the bank.
Does he need to call the IRS for paperwork, regarding a VAT number and all, or will this be sent to him automatically since he registered at the Chambre ? Is there anything else that we must think of when starting up your own business?
In which country is your friend doing business?

Rob

[Ingmar]

He is from the United States, Rhode Island

[RobJ]

Ingmar wrote: A friend of mine is starting up his own business. He already registered himself at the Chambre of COmmerce, and also opened up a business-account at the bank.
Does he need to call the IRS for paperwork, regarding a VAT number and all, or will this be sent to him automatically since he registered at the Chambre ? Is there anything else that we must think of when starting up your own business?
Registering with the Chamber of Commerce won't do anything for him in terms of setting up his company. There are many factors to be considered.

1. What type of business entity does he want to use - sole proprietor, LLC, Corporation (C-Corp or S-Corp), etc.

2. If he is going to operate as anything other than a sole propretor and he is going to employ someone, he will need to apply for an EIN (Employer Identification Number) from the IRS.

3. If he is going to sell goods and services that are subject to sales tax (VAT) in the State of Rhode Island, he will have to apply to the state for a "retail sales permit". If he will be buying from other businesses, he will need a "reseller's permit" so that he will not have to pay sales taxes to the other business. Here's a link for Rhode Island: https://www.ri.gov/taxation/BAR/

This should help him get a good start in the right direction. I'm sure others will offer their advice as well.

Rob

[Ingmar]

Thank you very much for the link, that website was very helpfull.

I have run into the foloowing questions:

The person has a special of his house (the basement) that he is devoting and rebuilding into his work-space. What are the posibilities of this in the business? I asume that all the costs that are made for rebuilding/transforming the basement are business-related. But how about the heating of the basement. Does he need a special gasmeter and system if he wants to qualify the heating costs for this workplace deductable, or can he take a certain part of the total-heating bill and deduct this?

Also, he already own a truck in private, that he wishes to use for the business. Basically, I was thinking of taking the truck to the dealer-ship, get it apraised, and then adding the truck to the assets for whatever amount the dealerships comes out to. Of course this all will have to be in writing from the dealer. I this possible? And if yes, does my friend have to acutally transfer money from his business-account to his private account, stating that he actually bought the truck on the company? Or can we suffice with a journal entry, for instance:

Cars/Vehicles (debit)
Deposits from private (credit)

Thanks in advance for helping me out here.

[Ahshucks]

You can set up the vehicle on the books at fair market value ... check an online blue book. A dealer will only provide you with Black Book values which represent auction values and not a fair market value. If there isn't too much value in the vehicle, you may be better off taking the mileage deduction. Your credit should be to an equity account, such as contributions from owner or other description.

Work through a form 8829 - Business Use of Home (available on the IRS site) for deductions that can be taken as a percentage of Business to Home Use. Utilities among other classifications are included.

[Ingmar]

Ahshucks wrote: You can set up the vehicle on the books at fair market value ... check an online blue book. A dealer will only provide you with Black Book values which represent auction values and not a fair market value.


Would it not be better to put the vehicle in the books for this 'black book" value ?
This way, the vehicle will be worth less, when traded in, there will be a bigger chance of making a "paper-profit" (trade-in value being more then value in the books after write-off). Where I am from, this 'paper-profit' can be legally deducted from the value of the new vehicle, as being the first 'extra' write-of.
Basically, the 'paper-profit' in this way is a non-taxable profit this way. Is this construction also legal in the U.S. ? Because then the 'black-book" value would be the wiser way to go, especially when just starting up a business. I mean, a 'paper-profit' of (for instance) $ 800, will result in a extra write-off off $ 800, being a non-taxable profit of $ 800. (basically, you earn the taxes over $ 800 this way).

[Richard Noot]

Ingmar wrote: Ahshucks wrote: You can set up the vehicle on the books at fair market value ... check an online blue book. A dealer will only provide you with Black Book values which represent auction values and not a fair market value.


Would it not be better to put the vehicle in the books for this 'black book" value ?
This way, the vehicle will be worth less, when traded in, there will be a bigger chance of making a "paper-profit" (trade-in value being more then value in the books after write-off). Where I am from, this 'paper-profit' can be legally deducted from the value of the new vehicle, as being the first 'extra' write-of.
Basically, the 'paper-profit' in this way is a non-taxable profit this way. Is this construction also legal in the U.S. ? Because then the 'black-book" value would be the wiser way to go, especially when just starting up a business. I mean, a 'paper-profit' of (for instance) $ 800, will result in a extra write-off off $ 800, being a non-taxable profit of $ 800. (basically, you earn the taxes over $ 800 this way).


NO It would not. For tax purposes you are required to use the lesser of cost or fmv.

[Ingmar]

Richard Noot wrote: Ingmar wrote: Ahshucks wrote: You can set up the vehicle on the books at fair market value ... check an online blue book. A dealer will only provide you with Black Book values which represent auction values and not a fair market value.


Would it not be better to put the vehicle in the books for this 'black book" value ?
This way, the vehicle will be worth less, when traded in, there will be a bigger chance of making a "paper-profit" (trade-in value being more then value in the books after write-off). Where I am from, this 'paper-profit' can be legally deducted from the value of the new vehicle, as being the first 'extra' write-of.
Basically, the 'paper-profit' in this way is a non-taxable profit this way. Is this construction also legal in the U.S. ? Because then the 'black-book" value would be the wiser way to go, especially when just starting up a business. I mean, a 'paper-profit' of (for instance) $ 800, will result in a extra write-off off $ 800, being a non-taxable profit of $ 800. (basically, you earn the taxes over $ 800 this way).


NO It would not. For tax purposes you are required to use the lesser of cost or fmv.


If, for tax porposes, you are required to use the "lesser of costs", then it would be better to go with the dealers appraisal here. This 'black book' value will be lower then fmv, and therefore be the lesser of costs. In that case, what I wrote earlier would be the case. The vehicle would then be in the books as an asset for the lower value. Going with the fmv in this case, would mean that you would go with the higher value. Or do I understand your reply wrong here Richard ?