I can't give you specifics of Maryland, but I can offer some general comments based on your original post.
With regard to business entity formation, the typical forms are sole proprietorship, corporation, and limited liability company (LLC). You can operate as a business in sole proprietor mode, it is not necessary to form a distinct entity. There are reasons why people operate as entities though, and whether you should or not is totally dependent on your specific situation.
To operate as a sole proprietor, all the business activity runs under and is reported under your Federal Tax ID Number (which is an SSN for most people citizens). You keep track of revenues, expenses, etc and report it on your year end taxes, IRS schedule "c". It is possible to obtain business insurance, licenses, and the like as a sole proprietor and it is the simplest way to operate. Everything that the business does, is the same as you doing it personally from a tax and liability perspective.
Forming an entity is done primarily to put a barrier between your personal assets and finances, and those of the business operation. Most common forms for a services business are corporation and LLC. Although this is dependent on state law, an LLC is generally more flexible, but also more complicated. Its generally not advantageous to do a "single member LLC," which would be the case if it was just you owning and operating. Corporation is an easier beast to manage and deal with, and would generally be a better move for a small solo operator. Having proper insurance as a sole proprietor is a good way to insulate you from business liability/exposure if the potential risk is minimal.
If you choose to form an entity, either an LLC or a corp can elect to be treated as a "disregarded entity" whereby the business maintains separate income and expense records, files its own tax returns, and any resulting profit or loss is reported by you on your personal return. Tax on profit, or credit for loss, is taxed or credited along with all of your other income. This treatment is what as "S" corp is as opposed to a regular tax treatment of a corp called a "C" corp. Either one is the same corporation, the letters refer to the way that you elect for the Service to tax them and what return forms you use. S would almost always be preferable for a corp with few shareholders (especially if the few is actually one, and it is you). Regular "C" corps report income, and expenses, and have to pay a tax on profit themselves. If there is any profit left over after that, it can be paid down to you as income, and then you pay income taxes on that. You want to avoid the "double taxation" so make the election.
I cannot tell you the mechanics of forming an entity in MD. There are online companies that can do most of it for one, LegalZoom is one. I have had clients use it and it worked well for them. YMMV. Also, they merely create forms at your direction and are not a substitute for advice of counsel or tax professionals to determine what you actually need.
Obviously, the anticipated revenue and scale of your business will bear heavily on which way you go. The smaller the operation, the less likely it is that you need anything complicated or heavily structured. The presence of any employees other than yourself is also of paramount importance.
I'll post a little more later on the employee angle.
Just re-read your post and you say you will be the only employee. Good, that is much easier to deal with. No workers comp insurance premiums, payroll taxes for others etc.
It is not a requirement that you set up a payroll and give yourself paychecks. In fact, it probably makes no sense in your situation. Writing paychecks involves determining how much you want to pay yourself and then you have to determine how much should be withheld from your own check for taxes, and set that aside. In addition, you have to pay over additional tax withholdings to the Service as the employer. (Employers also pay taxes on their employee's salaries). Computing all this is a PITA for a small operation. I believe quickbooks or other accounting software can do it, but then Quickbooks is a PITA itself.
you can certainly just write yourself checks out of the business profits, but you have to keep track of the financials. Cannot emphasize that enough; do not just "wing it" with money. If you are not actively payrolling yourself, then every quarter you prepare an IRS form where you list an estimate of revenues and expenses, and you pay the IRS a quarterly payment based on what you believe the profits will be. At the end of the year its reconciled on your returns and if you overpaid, you get a refund, or underpaid you owe. Just like regular W-2 employee. Your tax liability as determined by the tax return will include sums that are equivalent to the employer matching for income tax, social security disability etc that happens when you are working for someone else, and I don't remember the exact percentage at the moment.
Payroll is something that you will have to do if you hire employees, but that is down the line when your business starts rolling.
After you decide to form an entity or not, you will need to get the business licensed by the governmental agency applicable, be that city, county, whatever in MD. If your business name is anything other than your name, or the name of a corp you form, most states require a "fictitious name statement" that is filed with city or county or state. Its not a big deal, but must be done if required in your state.
Then, once you deal with all that, you can concentrate on trying to make money!
Lastly with regard to this and my prior lengthy post, these are general comments and not specific to your individual situation. I can't give you specific advice because I don't know the rules in MD and am not a lawyer there. These comments are also not intended to be a substitute for your discussing your specific situation with a lawyer or tax professional in your area, if you decide that you would feel more comfortable after talking to one about starting a business. The earlier post by PureShine is a helpful perspective from someone in the detailing business, but I can't definitely say that you don't need a lawyer, its up to you and your comfort level. An ounce of prevention is worth a pound of cure, though.
Hope it all goes well for you, and wish you success making money doing something you love.
-Ryan
Ryan....:applause:
No seriously, this should be a sticky!
I was raised by parents that always worked for themselves. Dad was a Dry Cleaner with his own plant and multiple locations after WWII through the late 60's, then they opened a string of Beauty Salons (that they wanted me to take over and I just couldn't bring myself to be a part of). :doh:
That however had made its mark on my future as I ended up leaving a union job in my mid 20's and opening a Towing Service that I ran for 18 years. Even started a home theater consulting/design/sales/installation company that I moved into towards the end as my background in architecture back in HS/college brought me back to what I 'know'.
Adding to that, even my wife operated a business on the side (of her regular job) for a number of years.
With the exception of the salon(s) none of our businesses were C-corps. Just too much paperwork involved, (not with the filing but as you know; with the day to day, month to month, quarterlys, etc.)
You mentioned Quickbooks, and I agree it is a PITA, although perhaps a necessary evil. Much better IMHO than Quicken to keep up with a business. I would suspect it is much easier these days than when I opened it the first time over 20 years ago. The hard part is actually setting it up, deciding on catagories, naming each and every darned thing you touch and the like.
Then of course the drudgery of all that data input to keep it all up-to-date. I've built and setup databases to keep up with all that before QB ever came along (back in the Win 3.1 days) and quickly tired of the data input. Remembering a computer is nothing other than an IO device. (Input Output, and if you don't put anything in, you never get anything out.)
I'd say the best thing of a sole proprietorship (
besides working for oneself) is the freedom to do whatever you want, and as far as expenses,
almost everything is a tax writeoff. Heck, you can go on vacation, do a detailing class while visiting Mickey Mouse, just mention your business to someone, and write all that off (within reason of course). :laughing:
Paying taxes on any and all business income then trying to write yourself a check, which is taxed yet again just doesn't cut it. OTOH as a sole proprietor you're only tax liability is based on your 'joint' income (if married), 'after deductions'. Paying quarterly estimated taxes need not be painful if you know what your deductions / itemizations are on your Sch C. For that matter it's possible to lose money as a business while paying yourself and still end up with a Tax Refund. (Again, this is TOTALLY based on a couples or individuals tax liability and should be discussed with your accountant.) I do know it to be true however, that actually you can do this for several years as a business and be fine. Although should someone take that route there will be a time if you're not making any money (or at least not showing it to the IRS) to declare your 'business' as a 'hobby' and the IRS puts an end to it.
The one thing I might add as far as insulating of liability is put anything of value in your wife's name. Really not an issue with a detailing business as a proper insurance policy can cover even the most expensive vehicles. In my Towing Business however, with our litigious society, the risk of a crash involving one of my trucks was far too great to risk losing my home, even with multi-million dollar policies in place.
(If you don't own anything, they can't take it from ya'.)
I'm sure you've seen it all along the way.
Being creative witth your accounting, having a GOOD tax accountant, and keeping receipts on EVERYTHING are tantamount to success as a sole proprietor. It is very rewarding, yet beyond frustrating at times. Even though now retired, I wouldn't trade my years doing it for anything.
Just my 2¢ worth....
Felt a wobble and all of a sudden my outside left rear PASSED me on I-16! Broke 5 of 8 studs like they were made of ice. Stuck me on the side of the road for 6 hours while my wife and partner rounded up new parts, new wheels and tires, and delivered them to me 150 miles from home. And YES the Ford dealership had just put the back wheels back on it the day before. (yet I didn't stop to re-torque them.) :dunno: