Every new year begins with promise. We tell ourselves this is the year it’s going to be different. That this year we are going to finally do it. Maybe for you, it is:
- eating healthy
- exercising
- bookkeeping
- learning a new language
- traveling more
And unlike me, you likely don’t have strong habits around performing a regular legal check-up of your creative business.
I know it sounds boring. But these legal tasks are critical in building a foundation to support your 2017 big goals.
Is one of your big goals to:
- earn six-figures? Then the task of electing s-corp taxation might save you thousands of dollars in taxes come April 2018
- have your business support you full-time? Then the legal task of deciding if you should be an LLC or corporation can give you peace of mind and more sleep in 2017
- hire a new employee? Then be a good boss and create an employee manual. In it outline her roles, responsibilities, and what you expect from her
To help you form a new habit, this post is the first of four I’ll be doing this year. Each one outlines a set of legal tasks you should complete in your creative business that quarter. (You can see the April tasks here, the July tasks here, and the October tasks here.)
So kick the year off, you are going to tackle between three and six legal tasks:
- make sure you’ve got your permit and license renewals on your calendar
- pay your taxes
- if you are a sole proprietor or in a partnership, decide if it’s time to become an LLC or corporation
- if you are an LLC or corporation, decide if it’s time to elect s-corp taxation
- if you are an LLC or corporation, document all major business decisions and hold any required meetings
- if you have employees, order updated employment posters
- if you have employees, update your employee manual
Make sure you’ve got your permit and license renewals on your calendar
Your business should have permits or licenses. And most of them need to be renewed from time to time. And if you don’t pay them on time, you may pay extra, or have to start the process all over. So you don’t forget, you should pull out all your permits and licenses and add them to your calendar.
For those with a renewal window, I usually schedule reminders for the following days:
- the day the renewal window opens
- the day the renewal window closes
- one month remaining to renew
- two weeks remaining to renew
For those that are due on a specific date, I usually schedule reminders for the following days:
- the day the renewal is due
- one month remaining to renew
- two weeks remaining to renew
To make it easy I schedule them in Asana as yearly repeating tasks. Which means next year’s reminders are scheduled as soon as I check it off.
Your assignment: Find your permits and licenses and schedule reminder renewal to-dos
Pay your taxes
To make your annual tax time a little easier, each quarter you should pay your taxes. You might owe:
- estimated self-employment taxes to the IRS
- collected sales tax to your state tax agency
- employer’s taxes to the IRS and your state tax agency
Your assignment: Send checks to the appropriate agency (And if you don’t have a system to set aside the government’s money, I highly recommend Profit First by Mike Michalowicz [affiliate link].)
Sole proprietorships + partnerships: decide if it’s time to become an LLC or corporation
Becoming an LLC or corporation brings three big benefits to your business.
The first is that it puts a fence between your personal life and your business. If anything goes legally or financially wrong in one area, the other isn’t impacted.
The second is that this fence gives you peace of mind. You no longer have to worry about if your home, is at risk if someone decides to sue your business. You no longer have to worry that a business creditor can take money from your “money to support me while I grow my business” savings account.
The final benefit is that it changes your perspective and helps you level up your business. I’ve seen so many creative businesses explode in the year after becoming an LLC. And they all tell me that it’s because they took on a different perspective of their business. They no longer think of their businesses as one-woman shops. But instead, they are now CEOs of a creative business.
Your assignment: Watch this 7-minute video where I explain my secret to knowing it’s time to switch (+ grab a workbook walking you through all 13 questions you should answer)
LLCs and corporations: decide if it’s time to elect s-corp taxation
At a certain point, LLCs and corporations might want to be an s-corp for taxation purposes. s-corp status is a tax status only and either LLCs or corporations can make this election.
Business owners opt for this tax status because it can result in significant tax savings. Sadly, there’s not a one-size-fits-all formula for when this tax status makes sense. Your accountant or CPA is the only one qualified to help you make this decision. And to make it, she’ll look at your business revenue, your business expenses, and your income tax bracket.
The reason you should do this at the beginning of the year is because there’s a small window to make this election. To elect this tax status for the current tax year, you must file a form with the IRS no later than March 15.
Your assignment: Make an appointment with your accountant in the first few weeks of the year
LLCs and corporations: document all major business decisions and hold required meetings
The whole reason you created your LLC was for the three benefits discussed above. And to keep your fence strong, you are required to document all major business decisions.
This might seem silly as a one-person show, but it shows that you are treating your business like a business. It fortifies your fence.
Your assignment if you are a corporation:
- If you haven’t held your annual shareholder meeting and board of directors meeting, hold one
- Write down all the major decisions you’ve made in your business in the last quarter of 2016 and add them to your central file (or if you’ve never done this, for all of 2016)
Your assignment if you are an LLC: Write down all the major decisions you’ve made in your business in the last quarter of 2016 and add them to your central file (or if you’ve never done this, for all of 2016)
Employers: order updated employment posters
As an employer, you are required to display various posters and notices. The Department of Labor FirstStep Poster Advisor helps you identify the required federal posters. And to find the requirements in your state here is a state-by-state directory of the U.S. Labor Agencies.
And don’t think you have to shell out a bunch of money to do this. Many agencies provide PDF versions of the posters that you can download and print for free.
Your assignment: Update (or get) all the required posters for your business
Employers: update your employee manual
- how to do their jobs safely
- the rules surrounding their employment
- any benefits you provide
Twice a year, you should update your employee manual. You’ll update it, based on situations that have come up or changes you have made to your business.
Maybe an employee forgot the social media password and changed it. And then when you tried to log in, you couldn’t. To make sure this doesn’t happen again, you’ll outline a system for updating and storing passwords.
Maybe you’ve decided to offer profit sharing to your employees. Because you believe this will incentivize good employees to stay or to reward their investment in building your dream. Since this is a new benefit, you need to outline to your employees how it will work. You’ll tell them how profit is calculated, how profit will be distributed, and what happens if they leave.
Your assignment:
- If you have an employee manual: pull out your employee manual and update it
- If you don’t have an employee manual: open a blank Google Doc and start outlining how you expect your employees to behave
#TL;DR
In January, there are between three and six legal tasks you should tackle to support your big goals for 2017:
- make sure you’ve got your permit and license renewals on your calendar
- pay your taxes
- if you are a sole proprietor or in a partnership, decide if it’s time to become an LLC or corporation
- if you are an LLC or corporation, decide if it’s time to elect s-corp taxation
- if you are an LLC or corporation, document all major business decisions and hold any required meetings
- if you have employees, order updated employment posters
- if you have employees, update your employee manual
Enter your information below to grab a workbook and checklist you can use to tackle these seven tasks. And start securing the legal foundation of your creative business so it will support your big 2017 goals.
