4 Smart Moves to Make When Setting Up Your Travel Business
Written by: Amanda on June 08, 2020
As you begin this exciting venture, it is important to take into consideration how you will set up your business. Outside of the learning the travel industry, the below resources will be key as you get started and as you grow your business.
Assemble a Team of Advisors
Having a trusted team of individuals to help you decipher the rules and regulations for your county, city, and state is essential. This team may include:
- Certified Public Accountant (CPA): Can help choose the correct entity, assist in applying for an Employer Identification Number (EIN), tax planning, and preparation of tax returns.
- Attorney: Can assist you in reviewing and preparing contracts and completing the correct paperwork for your entity.
- Insurance Agent: Are you meeting clients in your home? Does your current homeowner’s insurance cover client meetings or events in your home? These are all questions to be asked of your insurance agent.
- Banker: You will need a separate business account for your business. This is the best way to track earning and expenses for your business. A banker can assist you with the setting up of business accounts, a business line of credit, and if needed, a small business loan.
Keep Accurate Records
While a tedious task, it is important to track your agency income and expenses each month through your business bank account. All commission checks should be deposited into this account and all expenses should be paid with this account.
The tracking of money can be done using a simple Excel Spreadsheet or something more powerful like QuickBooks or Quicken. Deductions offset your income so it is important to ask your CPA for a list of common expenses/deductions so that each month can be categorized.
Because you will be receiving a 1099 at the end of the year instead of a W-2 form (where taxes have been withheld), it is important to set aside approximately one-third of your travel business earnings each month. In some cases, quarterly payments should be made to the government to minimize your tax risk and penalties at the end of the year.
Taking this step now will minimize your hassle and headaches come tax time. Keeping this detailed account of your business will also support you in the event of an IRS audit.
Decide on a Business Structure
The type of business entity you choose will depend on three primary factors: liability, taxation, and record-keeping. There are five options for business entities and three that typically fit our travel advisors best in the beginning stages of their business. Your choice will be determined by your business needs and will impact how your income is reported for tax purposes.
Sole Proprietor: This entity is for single owners who operate at a basic level. There are no start-up costs and typically no regulations at the state or local level. While simple and efficient, sole proprietors do not have limited liability, so they are personally liable.
Limited Liability Company (LLC): This type of entity can be for a single owner or partnership. An operating agreement is encouraged but not required and will assist in deciding how income and loss is distributed amongst its members.
If the owner of the LLC is one person than it is also a sole proprietorship and the sole owner can take advantage of the limited liability.
S Corporation: This entity requires the business to create articles of incorporation and bylaws. This entity does elect a special status and may allow certain tax benefits if they apply to you. Like other entities, your liability is limited to that of the corporations. You are not personally liable.
Plan Ahead When Budgeting
As you move forward with your business it is important to plan and budget for expenses. Tax projections are important in determining how much you should be withholding each month and whether you will have a balance due at the end of the year or will receive a refund. A CPA can assist you in this process.
It is also important that you have a balance in your account to pay for mistakes that might happen. Everyone will make a mistake at some point and the hope is that it is not a major one. Having funds available to assist in this event is crucial to your business.
The above resources and the KHM Travel Group team are here to help you start your business in the manner that is best for you. KHM Travel Group agents have more resources available to them on setting up their business in the Compliance section of MyTravelAgentPortal.
This post was created with the assistance of Walthall CPA.