Hey everybody! My name is Kris Amerikos, founder of Kolumb Language Center, KrisAmerikos.com, and Teaching-Revolution.com where I help teachers set up independent teaching businesses. And a lot of teachers come to me and they ask me this question that we're going to talk about in this video today, which is, "How do I register my business officially and then how do I pay taxes on my online teaching business?" So, that's the question today. That's what I'm going to answer. And let's jump right in!
So, first we'll talk about if you even need to register your business at all. Then, we'll talk about how you pay taxes on that business that you've registered. And I have to remind you that I'm not a lawyer and I'm not an accountant, so before you make any big decisions go consult your accountant or your lawyer and listen to what they have to say too. But this is going to be the general advice, the general information that I've learned throughout the last ten, eleven years of doing business online and offline as a teacher and as the owner of language centers.
So, here's what I've learned. There are two big questions you to be asking yourself before you even approach the question of registering your business or paying taxes on it. And the first question is: Where have you established residency? So, where are you legally considered a resident?
You might not have thought about this before, but if you live in one country and you don't do business there, you still become a tax resident. Maybe you haven't got a green card or any kind of immigration documents. You don't have a passport or a work visa. You don't have anything like that, but if you stay in a place long enough, you will become a tax resident. And what that means is that you might have to pay some taxes for living there for that period of time.
So, you need to know where you are considered legally a resident. And if that's your home country, then that should be a lot easier for you because you should be more familiar with the laws that surround that. But if you are a resident overseas or in a different country, then you'll need to find out about that. And you'll need to find out about how that's going to affect the teaching business that you want to set up and how it's going to affect you personally.
Then, the second thing that you need to be asking yourself is: Where is my business incorporated? Incorporation of your business can happen in the country that you live in or it can happen in a different country. And, because I'm from the United States, I know for a fact that in the United States you can register a business even if you're not a United States citizen. So, it doesn't matter where you're from in the world, you can register a business in the United States and have a United States business. Now, when we talk about taxes, that's going to be another question because then your company that's registered in the United States will need to pay taxes to the United States. So, that's something that you'll want to think about ahead of time.
So, two things to think about before we even really jump into this question of paying taxes or setting up your business officially through the government is: where you reside and where you are incorporated or where you will be incorporated. So, those are the two things you should find out about first. OK, now let's say that you've found out about those two things and I'm going to give you some examples from doing business in the United States and doing business in Russia. And then, you'll be able to see how that parallels with the country that you're in or the country where your business is.
So, first of all, how do you register and what kind of business should you register? Well, registering the business and paying taxes for the business kind of go hand in hand because, depending on what kind of business you register, you might pay a different amount of taxes. So, the first thing that you need to know is you probably don't even need to register a business to do business. OK. Most online teaching businesses don't require you to legally register any kind of business. You can do business as yourself, as an individual. Now, there are countries in the world where this is not acceptable and you must register your business legally. And for those kinds of places, you know, then you need to follow the laws there. But most places in the world, especially in the West, you can do business without officially registering a business.
And usually this is called a sole proprietorship. So, when you do this, when you set up this kind of business or you pay taxes on this kind of business, you are doing it as a sole proprietor. That's the kind of business that you have. In the United States you don't need to file any special documents or paperwork to become a sole proprietor. All you need to do is register that on your taxes. So, you need to announce that on your taxes. When you file taxes, you need to write that you're self-employed and then you need to announce how much you've made and you need to be honest about that. That's how the United States deals with it.
Now, if you're a foreign citizen and you incorporate your business in the United States, then that's a different story and there are going to be different guidelines that you have to follow. But, in general, in most places in the world, you can start an online teaching business without registering any kind of legal entity and you will be considered a sole proprietor for the purposes of both registering a business and for paying taxes.
Now, paying taxes as a sole proprietor is less advantageous than paying your taxes as a company. That means that you'll probably pay more taxes just by doing business as an individual. A lot of times the reasons to incorporate your business, or to officially register your business, is to make your tax burden lower. Your tax burden is how much you'll have to pay at the end of the year or during tax season.
So, by opening a business officially, you can reduce the amount of taxes that you pay. And here's the first step that you'll probably take. After you've started making a reliable amount of money from your teaching business, then you'll probably want to incorporate your business. OK? Most businesses are incorporated and it's a sign of a professional, right, to have a real, official business that's registered with the government, that's incorporated.
And the way that you do that is you'll probably set up some kind of legal entity like an LLC, limited liability company. And an LLC gives you a little bit of protection because if there's some kind of problem with your company, then probably your company isn't going to be able to lose more money than it has. If you're doing business as yourself and there's some problem with your company and somebody takes you to court, well, then they can also take your personal money or your personal belongings because you need to pay them back or you need to compensate them for whatever the problem was. But if you're an LLC, then you're protected against this. You have limited liability. That's why it's called a limited liability company.
So, any LLC is usually the next step that someone is going to take after opening their business as a sole proprietor. And when you pay taxes as an LLC, you'll see that you're protected also because you can have some business expenses that you can write off. And this makes it a lot more convenient for you. Whereas before, anything that you separated, if you wrote it off, then that was just your personal expenses because all of the money is really just yours as a sole proprietor. But all of the money is split between you and your company when you become an LLC.
Now, this is where it gets a little more complicated with taxes because an LLC could file taxes in the United States in two different ways. It could file taxes as a sole proprietor. So, according to taxes, nothing might change when you set up your LLC. You just have a little more legal protection. But your LLC could also file taxes as an S Corporation. An S Corporation doesn't mean small corporation, it's just a term from taxes. S and C are two different types of corporations. Big corporations are usually called C Corporations. And smaller ones are S Corporations, but it's not a rule and it's not really about size. It's just about classification in the tax code.
And, so, if your LLC files as an S Corp, then you'll be able to save even more taxes and you'll be able to write even more off as business expenses. However, that's not something that people usually do in the first stages of their business. They usually do this once the business is already successful and it's running. So, they want to decrease their tax burden, like I was talking about before.
So, what is the simple answer to this question? How should you register your business and how are you going to pay taxes?
Well, here's what you should do. First of all, you should ask yourself the question, "Where do I have residency established and where am I going to incorporate my business?" And those are going to tell you the laws that you need to find out about the specific countries, states, regions that you're going to be doing business in or living in.
Then, after that, when you go to set up your business, no matter where you are in the world there's different types of legal entities or types of organizations that you can register with the government. And, when you go to do that, there's probably going to be some kind of legal entity that's very similar to an LLC. And when you register your business you'll want to register as an LLC and that's going to give you protection, while also not being a huge investment. If you don't have a lot of employees, if you don't have any employees, then why would you need to register a corporation or anything else? Alright? An LLC will be just fine and that's all you'll need. However, if you don't need to register it, if you're in a country where you can do business as a sole proprietor, then I highly highly recommend doing business with your online teaching business as a sole proprietor for as long as possible.
So, for me, my goal was that once I hit $3,000 per month, that's when I wanted to open up my LLC, my legal entity, and officially register with the government. And so that's what I did. And then, once I reached $10,000 or $15,000 or more per month, that's when I started thinking I really need to reduce my taxes. And I went to my accountant and I said, look, we need to pay taxes as an S Corporation, not a sole proprietor.
And, you know, my legal entity was still an LLC. That didn't change. Just the way that we filed taxes changed. So, this is something that your accountant should know about. And, once you get to that point, they'll be able to help you out with that. And I actually give you some more advice about this in our program called the Teaching Business Catalyst. So, the Teaching Business Catalyst program is where I help teachers set up teaching businesses either from scratch or grow their teaching businesses that they already have. And our main goal in that program is to get them to that point where they're between $5,000 and $10,000 per month recurring every month.
So, that's how we set up a successful teaching business and if you're interested in learning more about that, there's a link in the description under this video. So, thank you so much for your time. Thanks for watching this video. And make sure you press like, you leave a comment down below, and you share it with your friends if you found it useful. My name's Kris Amerikos with Teaching-Revolution.com and I will see you very soon in our next video. Take care!
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