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Question added to topic Legal Basics For StartupsAugust 14, 2007

How does paying federal and state taxes work for an online business?

I am beginning to get income from a web based business. Do I need a tax ID number? How do I begin to pay federal and state taxes? Do I need to file any paperwork now? Can I wait until the end of the year to pay taxes?

The business will pay federal income taxes in the same way it would if it was a brick-and-mortar business.  The address for filing will be the principal business address of the entity.  Whether or not you will be required to pay state income taxes will depend on the laws of the particular states in which you transact business (i.e., in which your customers reside).  Also be aware that many states impose sales tax on items sold online to residents in the state.  You must review your business model with an attorney knowledgeable in these matters.

Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.

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