Small business questions

I've been tossing around the idea of starting my own company. I'm unsure of exactly what's required, and what the benefits and costs would be. I don't have a product or business model yet, so it's just been brain storms so far. I have some friends that have done it and claim the tax benefits all the time, but I can't believe what they are doing is legal in anyway; I have a feeling they are just such small potatoes (barely even surviving) that the gov doesn't give two shits about how they are scamming their way with the tax system and getting off paying much less in taxes. I have a feeling if their businesses turned profitable they would get a bit more scrutiny. And if they got that scrutiny I have a feeling the IRS would say "whoa, you cannot operate like this, you are clearly doing illegal things in an attempt to circumvent paying taxes".

Can I just start a business and register my name and get everything "official" in terms of filling out forms and such, even without a business plan? And if so can I then do whatever I want under the business name? Things I was thinking about include buying a house and renting it out (probably will have to wait until I have a bit more cash), buying a vending machine, buying things in bulk and reselling smaller portions on ebay, buying low cost items and selling them on ebay with a mark up, buying a small ice cream cooler (like an ice cream truck without the truck. Just push it around town, or attach it to a bike).

I know a lot of stuff would fall under business expenses and I would be able to write things off for tax reasons, but would that even benefit me. If I bought a house and rented it out there is no way I could hide that from the IRS - they would absolutely know I was making income from that. But if I was selling things on ebay wouldn't I be better off financially if I DID NOT operate as a business, and just kept everything off the book officially and didnt claim anything? The only benefit I see to a company would be to relieve me personally of liability and protect my personal assets, and to take advantage of tax deductions relating to a business that it too large/documented to fly under the radar.

The only way it would make sense to operate as an official business when not claiming everything would be a realistic option would be if I could deduct enough stuff to show a loss on the business. If this is a REAL operating loss though I would be better off not doing the business. If this is a loss just on paper (as is what happens with the aforementioned friends) wont they catch on?

For example, I want to buy and sell things on ebay. I buy a product for $200. I resell it in smaller packages for $300 on ebay making $100 profit (which I should have to pay tax on). But I had to drive to the store to buy this stuff, and drive to the post office to ship it. I also had to take over my internet bill (as I work out of my home hence home internet is now a business expense). So now on paper I have $200 of product plus $150 in business expenses, and only $300 in income. So on paper im losing money, and pay no taxes on for any profit I made on ebay. I "profit" in my personal life as I no longer have to pay for internet and I got a reimbursement check from my company for 50 cents/mile for driving to the store and post office.

So other than the cost of registering my business name and becoming official I see this as a legal loophole to make money and avoid paying taxes. The benefits seem to get better the larger the business gets, especially if you can take cash transactions.

I could buy a $1,000 vending machine, and buy $300 of soda OFFICIALLY, and on paper be taking a loss. But in reality that machine could be hopping and im putting in $100 worth of soda every day and taking out $300 cash every night and not reporting it. Now I cant really buy 10,000 cans of coke and use it as an expense and then not have any income, but I could buy 10,000 cans of coke and make my 75 cents profit on each one, but only claim I bought 1,000 (and the other 9,000 I buy off the record and still reap the profit). So on paper I could show a loss when in reality im taking home sacks of cash tax free every night.

Anyone have any thoughts on this?

using business models for tax benefits is perfectly legal, only if the business transactions are legal.

if you're planning on using inventory it won't work. tax auditors will catch you quick. reason is that legally, you're supposed to keep accurate records for every transaction a going concern engages in. failure to do so will only get you in more trouble. if you don't have the records, your supplier does. and chances are your supplier doesn't have anything to hide.

i know plenty of people who have setup companies in order to take advantage of the limited liability. for example, most doctors I know are employees of their own practice, which is a limited liability company. any problems that may arise affect the company and it's assets.

not the doctor, his home, his cars, his bank accounts.

if you think you'll just be able to indefinetly operate a small business at a loss, get tax credits, and keep that business open for more than a few months, and the IRS won't catch on, well, no. that's not going to work. the IRS expects small businesses encountering prolonged losses to close. when they don't, they suspect something's up.

talk to a lawyer about how you can work your portfolio to your advantage.

I would suggest going to your local Better Business Bureau and give them a rough outline of what you have in mind. They can help steer you towards the agencies that can help get your enterprise going. It's not difficult to hang a shingle with your name on it and open for business. As a small business you want to limit your exposure and liability as a business. For example, you start out renting a space to do business and when things get more profitable you may decide that owning your own storefront is a better investment. And it is but you should buy the property in your own name and then have your business pay you rent to be there. In the case of lawsuits, you don't want the business to have huge amounts of assets that could be taken in a civil lawsuit.

spleefed said:

And it is but you should buy the property in your own name and then have your business pay you rent to be there. In the case of lawsuits, you don't want the business to have huge amounts of assets that could be taken in a civil lawsuit.

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You can play both sides of the fence. Both things will benefit you at different times. For example divorce, esp if it was your business before the marriage. You can have big important things in your biz name so that way if you get a divorce when she comes after you she can only come after what you personally own. Basically she cant go after your biz because what that company may do doesnt concern her.

Its like selling all your furniture to your buddy for $1. That way she cant take it from you in the divorce. Then once its final buy the furniture back for $2 lol. This happens more than you guys think lol.

Are you followin me? i am high whenever i post on here so bear with me lol

There are so many things you can write off as a home business. Just do some research and you can find some more answers

What ive just learned recently.
Lets say youve got a great product. (Ex. food)
That product comes from another area of the world or country.
Consumers in your area are not used to this product but are curous to what it is.
You go out and sample the product (wherever that may be)
You mark the price up on it very high because remeber, the people in that area have never really heard of it.
And you make a killing.
Just look at what redbull does, it cost 3 bucks for a can of somthing it probably takes them 25cents to make
Im tellin you i know people who have done this and have flourished in profit