Do you need a business license to do affiliate marketing?
I've had many of my readers ask me this question so I've decided to write a blog post on this topic.
To give you a quick answer, this all depends on where you live. There's a thing called laws and regulations that you need to understand first whenever you start some kind of online business.
Keep in mind I am not an accountant or a lawyer, so you will need to do your due diligence whenever you start any kind of business. The info on this post is not legal advice!
However, I am still going to be able to give you a great overview of whether you need a business license or not for affiliate marketing.
Let's jump right in!
Do You Need a Business Licence to Do Affiliate Marketing?
It's generally unlikely that you'll require a business license to launch an affiliate marketing business.
However, do keep in mind that the requirement for a business license can vary by jurisdiction or city so it's always best to check.
If you are starting any other type of online business where you are buying products wholesale and then reselling them, it's likely that you will need some kind of business license. But again, this varies, so you'll need to check with a tax or business professional in your city.
Legal Stuff to Know Before Starting an Affiliate Marketing Business
One thing to keep in mind is that affiliate marketing income is taxable. Even if you are still employed, you will need to claim income from your affiliate marketing business.
Typically, you would start as a "sole proprietor". This doesn't require any special licensing on your part so anyone can do this really. Your accountant or "tax guy" can help you when it comes to tax time to sort this out.
Another thing that you might be required to do is to fill out a W9 form if you are in the USA. If you're in Canada like me, a W-8Ben is required. This applies to affiliate platforms that are based in the US.
This is not required for all, as some may not ask for it. You can learn how to fill out a W-9 form here.
Types of Business Structures in Affiliate Marketing
There are different types of business structures that you can use for affiliate marketing. The structure you choose will have an impact on the amount of taxes you will pay and how you report your income. Everyone's situation will be different but here are the business types:
1. Sole Proprietorship
This is the simplest form of business structure, where the individual is the sole owner and is personally responsible for all business debts. This is the one that you will likely start with and usually does not require any special licensing.
This is where you could "team up" with another affiliate marketer where you share the profits and have joint legal liabilities. This one is unlikely because us affiliate marketers are lone wolves! I thought I'd include this one anyway.
This is a legal entity that is separate from you. The benefit is that it provides protection against personal liability.
4. Limited Liability Company (LLC)
This is a hybrid structure that offers the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.
As I mentioned previously, you can just start as a sole proprietor where you won't need any type of business license. It only makes sense to change to a corporation or LLC when you start making good money resulting in paying higher taxes.
The Consequences of Not Having a Business License
Now, please keep in mind here, that it's likely in your jurisdiction that you won't need a business license to do affiliate marketing or most types of businesses on the internet.
But what if you do need one? What are the consequences of not having it?
In places where a business license is required, failure to get one could result in fines. Now, I don't know what the monetary amount of these fines are, but why punish yourself financially. Just get a license if it's required.
You could even get a cease and desist order. This means you have to stop all your business operations until you get your license.
There could be financial implications such as banking hurdles. Once you finally get your license, you may be required to set up a business bank account which will just take more time.
Tax Consequences - Lack of a business license could lead to issues during tax audits and could result in back taxes, penalties, and interest charges.
In short, if you need a business license, get it! The headaches of trying to fix this later will seriously outweigh the headaches of obtaining one before you start your affiliate business.
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How to Manage Your Finances For Your Affiliate Marketing Business
When I first started my affiliate marketing business, I already knew that I didn't require any special licensing, so I dove in as a sole proprietor. This is likely what you will do as well.
But how do you manage finances?
As a sole proprietor, you don't need a separate bank account. Your personal bank account is totally fine to use - as long as you keep accurate records of all your affiliate commissions and expenses.
A separate bank account is helpful, but not necessary.
To keep track of everything, I just kept all my expenses and commissions in a daily tracker I built with excel. You don't need any fancy software. It would be a good idea to download and keep all your files for business expenses, in the event of an audit.
This all changes when you decide to go the corporation or LLC route.
When I incorporated, I had to set up a separate business bank account. On top of that, I synced this account with QuickBooks Online which automatically updated my revenue and expenses real time.
You will even need to set up a separate PayPal account and don't forget to update the email address for your PayPal account with all the affiliates you deal with. I forgot one and ended making a commission paid out to my personal PayPal which should not have happened. It was an easy fix but just be sure you make these updates.
Tax Benefits and Deductions
Revenue from affiliate marketing is taxable. To offset this, affiliate marketers can deduct expenses related to their business, such as website hosting and advertising costs plus a whole lot more. It's important to keep accurate records of all expenses and consider hiring a tax professional to ensure that all deductions are accounted for and applied correctly.
Whether you are doing affiliate marketing as a sole proprietor or corporation, you can still deduct expenses.
Conclusion: Do You Need a Business License For Affiliate Marketing?
As you now know, for the most part you do not need a business license for affiliate marketing.
However, as I mentioned I am not an accountant or a lawyer, you should check with your local jurisdiction where you live to confirm this. The implications of not having one when you need it is not something that you want to face.
Afterall, your focus is to make money, not deal with legal headaches!
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