Texas's low tax rates for businesses and robust economy make it a good place for skilled professionals to go into business as consultants, providing important professional services for a broad range of clients. However, in opening a consultancy, be aware of the various legal obligations and tax issues that you must address.
Choose a structure for your business. Most consultancies are not formed as corporations, for various reasons. First, consultancies tend to start small and remain small, so any benefits you may get from forming a corporation probably will not outweigh the complicated accountancy issues associated with running a corporation. Second, as a consultant, most of the operations of your business will always lie completely within your hands, so bringing in a number of other partial owners by selling them corporate stocks does not make much sense, as this will require you to give them decision-making power in the company. Third, the main reason that new companies incorporate is to raise capital for growth, and the start-up costs for a consultancy are relatively low anyway. For these and other reasons, you should probably form your consultancy as a sole proprietorship or as an LLC. Forming an LLC gives you more liability protection than a sole proprietorship, but it may require more paperwork. In Texas, you may also set up an LP (limited partnership), LLP (limited liability partnership) or general partnership. However, these are only good options if you plan on having a partner in your business, which most consultants prefer not to do.
Register with the IRS and get an employer identification number (EIN). Most businesses in the United States have to do this. However, if you do not plan on employing anyone and if you do not have a partner, this may not be necessary.
Get any necessary licenses or permits. While many states require consultants to get general business licenses and pay fees for them, Texas does not. However, Texas does require some consultants to get various professional licenses and permits, depending on the type of work they plan to do. Do a search on the federal government's Small Business Adminisration website; it will find requirements that deal with state and local governments as well as the federal government.
Take care of taxation issues. If you have an employee such as a secretary, you must pay employment taxes. If your consultancy is an LLC, Texas requires you to pay a franchise tax. Most consultancies do not sell taxable products or services, but if you do, you will have to charge your clients for state sales taxes that apply to those. Review the list of taxable services on the state website to see if any services you offer meet the descriptions for taxable services.
Ronald Kimmons has been a professional writer and translator since 2006, with writings appearing in publications such as "Chinese Literature Today." He studied at Brigham Young University as an undergraduate, getting a Bachelor of Arts in English and a Bachelor of Arts in Chinese.