The Power of One

Q: I'm starting a business at home and have no one else working for me. Am I required by law to obtain an employer identification number (EIN) to begin with? What stipulations are required if I sell a service from home?

Bobbie Thrift
Hoboken, Georgia

A: As a sole proprietor without employees, you're not required to get an EIN, but it's a good idea for several reasons. First, you may employ someone else sooner than you expect, and second, using an EIN instead of your Social Security number when you invoice payments makes your business seem more professional. You use Form SS-4 to apply for an EIN. For details, go to www.irs.gov/prod/bus_info/pub1635.html#Apply, or see IRS Publication 1635, Understanding Your EIN, or Publication 583, Starting a Business and Keeping Records.

Other legal steps you need to take include:

Checking your zoning and homeowner restrictions on home-based businesses. You may also need a city business license.

Obtaining a seller's permit (aka Certificate of Authority and Resale Certificate) from the agency in your state that administers the sales tax.

Filing quarterly estimated federal and state taxes if your state has an income tax.

Don't be put off by those legalities. Getting your business off to a sound start helps build a necessary foundation for success.

Small-business experts Paul and Sarah Edwards' latest book is The Practical Dreamer's Handbook. Send them your start-up business questions at www.workingfromhome.com.

This article was originally published in the April 2001 print edition of Entrepreneur with the headline: The Power of One.