Creating an IT consultancy in the USA, Episode 0, part 2

It’s been a while since I continued this topic. The proverbial 100 hour workweek has taken its toll. Picking up where I left off, I have 5 more points to go through in the article “10 Steps to Starting a Business”.

Government - If you think the problems we create are bad, just wait until you see our solutions.

Step 6: Register a Business Name (“Doing Business As”)

By default, your business name is the same as your full personal name. If you want to use something other than that, you must file for what is variably known as a “Fictitious Name”, “Assumed Name”, “Trade Name” or DBA (“Doing Business As”, not the DBA that we IT pros think of).

The ways you go about registering your fictitious name vary depending on the state or even the county in which you live as well as what type of business you’re setting up. LLCs and Corporations have different methods for filing business names. For me, as a sole proprietor, things are relatively simple.

As for my state and county’s regulations, Step 6’s page has a complete listing of all 50 states, their filing requirements and links to the appropriate sites. No guarantee on how up to date those links are kept though.

Interestingly, my state (Arizona) does not require a formal registration of a business name, however it is “an accepted business practice” and is necessary to avoid someone else using your business name in the future. I have to file with the Arizona Secretary of State’s office.

And now comes a somewhat amusing part of the story. About two or three years ago while living in Ohio I had picked out an informal business name that I never registered. At the time, I merely searched for registered domain names to see if anyone else was using the name. I found that someone else had registered that name as a .com but not as a .net or .org.

I didn’t think much of it, realizing that two businesses can have the same name if they’re in different states. I registered the .net and continued to informally use it when registering for webinars or filling out questionnaires. I never actually made any money or hired myself out under that name, however.

Now, after moving to Arizona and attempting to develop a business name in earnest, I looked closer at that web site / individual that had been using the same business name that I wanted..

It turns out that the person using that business name has a fairly successful website for consumer electronics and not only lives in Arizona, but in Phoenix at an address just a few miles from where I now live! Furthermore, his profession is in the IT industry and his job title is “IT Systems Engineer”.

No. Way. Ever.

Technically, the business name that he uses for his website is not registered in the state of Arizona, however I wasn’t down with using the name that he has been using for years… especially not with him living in the same town and working in the same profession and having the same first name. That just wouldn’t be nice of me.

Back to the drawing board for business names. Fortunately, the state of Arizona has a nice search feature to help when looking for already registered business names. That tool helped me realize that it’s very, very hard to be original these days. Well… “sdgkj2$G4h” is original, so let me qualify that a bit better. It’s hard to be original and good these days.

It’s also worth noting that the rules surrounding accepted characters, abbreviations, offensive words and even World Wide Web based prefixes and suffixes (such as .com) within a business name can be rather complex. Make sure you read up on your state’s trade name standards. As an example, this is Arizona’s standards document.

After some pondering, I came up with what I believe is a decent business name, somewhat similar to the old one, certainly not original (a few dozen other companies in the Phoenix area have the same basic name, but none of them are in the IT field) but certainly not bad. Crisis averted.

Step 7: Get a Tax Identification Number

Two things being certain in this world, death and taxes (although I’m certain taxes are even more unavoidable), you knew something like this was coming.

There is an EIN, which is your federal tax ID (also known as an Employer Tax ID and a Form SS-4), is used to identify a business in the eyes of the IRS. Almost every business entity needs one, with one notable exception. If you can answer “No” to all six of these questions, you don’t need an EIN.

As my understanding goes, as a sole proprietor with no employees who does not file any excise of pension tax returns, I do not need an EIN. Instead, my social security number will suffice. However! Some will recommend getting an EIN even as an independent contractor because 1)It keeps your social security number off of more paperwork than it needs to be on, 2)It’s easier to open bank account in the name of your business and 3)It makes it so that the IRS can’t classify you as an employee (reference).

Fortunately, the IRS makes it oh-so-easy to get an EIN number. You can apply online!

Step 8: Register for State and Local Taxes

The Federal government isn’t the only ones who require a few ounces of flesh from you. Each state has its own tax structure, so check out’s list of all 50 states and links to their specific business tax information pages.

Unfortunately, two of the four referenced links for my state, Arizona, were broken. However, I was able to find a lot if good information at (gotta love that domain name).

Part of the state tax process in Arizona and I’m assuming other states is to get a business license. However, not all business require a business license and other need multiple license. Further complicating things, there are three types of business licenses that you may or may not need a combination of.

I’ll leave you to figure out the specifics of your state and personal situation, however you may want to take the advice of my state’s tax website and “Consult your attorney”.

Step 9: Obtain Business Licenses and Permits

This is in many ways a repeat of the previous point. Getting a business license and permit seems to be part and parcel of getting a tax license. Stepping through the mire that is part 8 will get you to many of the same places that you will end up in part 9.

Step 10: Employer Responsibilities

If you decide to become an employer and you further decide to hire people on an employee basis rather than a contractor basis, weep in agony, poor soul.

It is an expensive and complicated thing to have an employee. Forms such as W-2s, W-4s, Copy A’s, I-9s, New Hire Reports, Forms 941 or 944 and who knows how many state level documents have to be filled out. Furthermore, you start paying things like Unemployment Insurance taxes, Workers Compensation Insurance and possibly Disability Insurance. Did I mention Form 940 and FUTA?

Oh yes, you open up a whole can of worm and the government opens up a different kind of can on you, especially if you get something wrong. For me, I’m not planning on employing anyone soon – especially considering the flaming hoops and minefields you have to be careful of. I’ll stick with hiring contractors if I need some extra work done, thankyouverymuch.

So that’s it! Simple, no? No.

Annoyingly, I haven’t even made it past step 6. Furthermore, I’ve decided to pursue a different business structure! If you followed my previous post that chronicled the first 5 points of the 10-step program, you know that I had originally decided on a Sole Proprietorship.

I started to consider what that meant. I’d really like to branch out past this initial contract that a friend offered me. I’m even considering becoming a MSP and/or hosted services provider. If I do something daft at a customer site like knock an email server over or mash up a CRM database, I will be personally liable for all damages. That means all personal goods can go up on the auction block to pay damages. House, car, clothes, heirlooms, pets, you name it.

However, if I become an LLC that scenario no longer exists. All business assets can be auctioned, but nothing personal. I previously thought I could simply convert to an LLC from a sole proprietorship when the time came. Then a thought came to me: “Why wait?”

My previous hesitation at becoming an LLC was due to the additional paperwork required, but seeing the imminent deforestation that will be required for steps 8, 9 and 10 (should I ever do 10) pretty much makes it improbable that a few extra slices of paper will make the load much more unbearable.

With that determination in mind, I set off on a slightly different course: Becoming an LLC! Any insights are greatly appreciated.

One Comment

  1. […] Creating an IT consultancy in the USA, Episode 0, part 2 […]


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