Starting Your Own Business, The Great American Dream Or A Nightmare!
Starting a business is a dream for many Americans, who believe that the freedom of self-employment is key to personal and professional fulfillment. But before you sign on the dotted line and start your new company, there are some thorny tasks to overcome. With little time and money to spare, you have to figure out how to make it through all the paperwork, taxes and regulations. To help you get started with your new business venture — or avoid those pitfalls altogether — here’s a rundown of what it takes to launch a successful small business in America today:
• You will need at least one (mostly free) hour of tax advice from an accountant each year.
• You will need an initial investment of at least $250,000.
• You will have to pay federal taxes in the first year. If you start with less than $250,000, you can get a tax deduction in the first year. The higher your earnings are from that day on, the more your deductions increase. You may miss out on even more deductions depending on your income level at the end of the year; this depends on whether or not you are self-employed (not just an employee of someone else).
• Do not be afraid to employ people if you need extra hands. But if things go bad and you go under, it is likely that they too will miss out on unemployment benefits. You will be liable for any debts that you have created, such as loans or bills to other companies.
• You will get your own tax ID number, and you can buy insurance on your business from any insurance company. They might ask for a business license (which you can get from your city hall). You can also get a bank account. You may need an EIN (Employer Identification Number), which is different from the Social Security number.
• You should read Chapter 3 of the IRS tax guide (Publication 334), available at the IRS website www.irs.gov or by calling 1-800-829-3676. You can also find information in the IRS Publication 334 at www.irs.gov/pub334 or by calling the IRS Business Line at 1-877-829-5500.
• You can deduct many of your business expenses, including workplace improvements and training for new employees. This lowers your taxable income, thus lowering the amount you pay in taxes each year.
• If you are a sole proprietor (the other owner is your spouse), you cannot claim a deduction for business use of the home, nor can you claim a retirement plan deduction such as 401(k) contributions or a vacation allotment (as if it were a company bonus).
• You can buy an insurance policy to cover your business against major losses (against which you can deduct your losses).
• You cannot deduct depreciation from the cost of a car that is used for both personal and business — only if it is used for business.
It’s a good idea to keep a journal of your work time so you can prove how many hours you spent on business, in case the IRS questions you. It’s also a good idea to get an accountant or lawyer to review your bookkeeping.
One way to reduce your taxes is to set up a retirement plan. Although you may not be able to deduct contributions, you don’t have to pay tax on the money until you take it out. You can set this up with your bank as a 401(k) or put money into an IRA — Individual Retirement Account — which is available from any bank or investment company.
If you are starting a new business in America today, there are all kinds of ways for you to reduce your taxes: such as investing in new machinery or computers that make your business more productive, hiring more people if the business picks up, and setting up a retirement plan for yourself. You can even deduct the cost of an office party to celebrate your new business. You will save money by having a computer, fax machine and cell phone; this will certainly help you be more productive in running your business.
When starting a business and considering a home office, you may want to think about these options. Starting a business in America is one of the greatest ways to make money, with the least amount of hassle. You can be your own boss, set your own salary and work around your own schedule. But don’t go into it lightly, or you could end up in financial trouble.
Before you get started, think about what kind of business you want to start, how much time and money you are willing to invest in it, and what kinds of risks you’re willing to take. You have a lot of options when starting your own business, but no matter which path you choose, it is very important that you plan for the long term: scale yourself into the project and make sure that it will be sustainable in the long run; optimize your spending; don’t over-extend yourself financially or physically; employ good habits such as daily recordkeeping of all financial transactions; and keep an emergency fund.
You may want to think of starting your own business as a full-time job; this will enable you to make money that you choose how to spend it. You will earn more tax-free income, so it is always a good idea to save for retirement, and you don’t have to pay into Social Security until you are 65 (or older).
Start your business — or any other part of your life — with a strong foundation. Think about how long you want the business to run (some businesses may die after three or five years, but others may last for decades), and what kind of lifestyle change you want out of the venture.
If you are planning on staying at your job but also want to start a business, there are many ways to do it: you can work part time or moonlight; get overtime at your job (but only if they will let you do it); or get a second job. If you can keep both jobs going, then great. It is important that you plan your personal and business lives so that they will work together and not conflict with each other.
There are many books out there that cover all kinds of business-related topics, so here are some suggestions for further reading:
Rick Steves’ Europe Through the Back Door Guidebooks by Rick Steves is one of my favorite series of travel guides for Europe.
Conclusion is a classic book on personal finance, written by William J. Bernstein and published by McGraw-Hill.
The $100 Start-Up Manual is a great book if you want to know how to create your very own business. Written by Benjamin Hardy, it is full of useful information about starting a business in America and is available from www.BenjaminHardy.com/index1.cfm
How to Create Wealth by Jack D. Schwager is a great book for anyone who wants to start their own business or take part in an entrepreneurial venture in America today — I have quoted some excerpts from the book in this chapter; it’s available at www.jackschwagerbooks.