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A person would like to provide home services for some of his neighbors.

Is it necessary to set up an official business and employ himself -- perhaps for purposes of sales-tax compliance?

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  • I’m voting to close this question because it belongs on money.stackexchange.com Commented Nov 15, 2023 at 21:06
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    No, this is pretty clearly a question about the law.
    – bdb484
    Commented Nov 15, 2023 at 21:11
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    Thanks to the person who edited my question! I'm new here, and I appreciate it. :) Commented Nov 15, 2023 at 21:15

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Is it necessary to set up an official business and employ himself -- perhaps for purposes of sales-tax compliance?

No. Indeed, I personally am just a self-employed sole proprietor with no "official business" that employs me, as a lawyer, although there are many circumstances (e.g. when you have employees or subcontractors) when it might be desirable to have an official business with limited liability protections.

If you don't take any formal steps to organize yourself as a business, and you are self-employed, you must report your income less expenses on Federal tax form 1040, Schedule C, and must pay self-employment taxes on your income on Federal tax form 1040, Schedule SE. You will also have to report this income on your Minnesota state income tax returns.

Generally speaking, sales taxes are only owed on retail sales of goods, and not on services of the kind your question alludes to, so you may not need a state sale tax license in connection with Minnesota's state sales tax. But Minnesota does tax some of the services that you might provide (hat tip to user6726 in the comments). If that is the case, you need to get a sales tax license from the state, but that does not require you to have a business entity that employs you. Sole proprietors who don't have business entities are allowed to get sales tax licenses.

You may also need a local government general business license which involves a small annually fee for the privilege of doing any kind of business at all in the locality.

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