Nov 272011
 

This guest post is by Sunil of Extra Money Blog.

Making money online is no different than making money from any other type of business in that you have to abide by the same laws and regulations as any other business or citizen.

Many internet entrepreneurs fail to consider this and are later faced with severe fines and penalties from relevant governing authorities. Others face even more severe repercussions.

How do I know? I’ve had to help many get out from their terrible situations! See, I have a slight advantage. Not only am I a successful internet entrepreneur today, but I was also a CPA and financial consultant in my past life.

Tax time

Copyright Christopher Meder – Fotolia.com

Although I have no data to prove it, my theory is that many young entrepreneurs enter the online business space without fully understanding its nature and the laws and regulations one must adhere to in any for-profit activity.

The lack of awareness and knowledge is what leads most people to unforeseen unfortunate circumstances with the legal authorities.

Below are a handful of legalities to consider as you embark and progress in your journey of making money online. These are some of the most financially impactful in terms of fines, penalties, liability exposure, and money left on the table, yet they’re ones that are most commonly overlooked by bloggers and internet marketers.

Note that this post focuses on regulatory obligations under United States law.

Note: None of this should be construed as legal or tax advice. Consult your personal and paid accountants and attorneys before implementing any part of this discussion.

Legal incorporation

A business online is a business nonetheless. And any business can be sued for anything.  At the very least, it’s a good idea to ensure your personal assets are protected and “separated” from your business assets.

One way to do this by incorporating your business under a formal legalized structured such as a limited liability company (LLC).

Contractor pay compliance

In the United States, you are required to timely complete and file Internal Revenue Service (IRS) Form 1099 for each contractor hired if you paid them at least $600.

This is how the government tracks who is earning money from freelance labor. This is also how the government tracks whether expenses claimed as deductions are being claimed as income elsewhere. For example, when you claim a $600 business deduction, that is $600 less the government can

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