Thoughts on Starting your own business
Lisa Church
Helping Small Business Owners & Real Estate Investors Pay Less in Taxes. Representing those with back Tax Problems before the IRS.
I was recently talking to a client who told me she was interested in leaving her job to start her own business. Starting your own business can be a good idea or a bad idea as there are many pros and cons to running your own business. If you are very good at what you do, and your skills solve a problem that clients are willing to pay well for then starting your own business may be a wise choice.
There is a very long list of benefits to starting your own business. 3 of those benefits to consider are:
(1) Business owners have Fewer Limits on their Income
There are more opportunities to increase your income as a business owner than working as an employee. If you are an employee your income is limited by the number of hours you work (if you are paid by the hour), and by many constraints set by your employer over which you have no control. If you build your own business, you don’t have an employer that defines your income and limits your income. Your income will instead be limited by other factors such as marketing skills, quality of product/service, quality of staff, level of automation, process standardization, efficiency, competition, market conditions, and so on. However, with a good mentor most of these income constraints can be overcome and removed far easier than the constraints an employer puts on an employee.
(2) Business owners Pay Less in Taxes
Taxes are a significant expense every year for most families. If you are an employee, you are taxed on every dollar you earn. If you own your own business, you are taxed on the dollars you earn AFTER business expenses have been deducted. This means you pay taxes on the income after expenses whereas an employee you pay taxes on income before expenses are deducted. So, you have far more opportunities to reduce your taxes as a business owner than you do as an employee.
Expenses that can be deducted as a business owner are defined on the IRS website (https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses) as:
“To be deductible, a business expense must be both ordinary and necessary.
An ordinary expense is one that is common and accepted in your trade or business.
A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.”
As the business owner you get to define what is ordinary and necessary for your business. Common tax deductions for home-based small business include:
· Home office costs (electric, heat, rent, mortgage, etc…)
· Auto/Mileage
· Office supplies
· Furniture
· Equipment
· Training classes, Books, Audio Books, Mentor Fees
· Software and subscriptions
· Travel, meals and gifts
· Insurance premiums
· Retirement contributions
· Social Security contributions
· Cell phone charges
Many highly profitable businesses pay very little income tax during years they invest heavily in their business. Amazon is one of the classic examples that has had significant earnings but paid little in income taxes due to high business expenses (e.g., invested for future growth). Tax reduction opportunities of this magnitude are not available for employees but are available for business owners.
(3) Business owners can sell their business when they retire
If you build a successful business that can be run without you then when you retire you can sell your business. When you are an employee, you don’t own the business so you can’t sell it. As an employee, your years of labor build the business for the owner.
Invest in yourself to be very good at what you do
If you are not yet exceptionally good at what you do then I recommend you first work as an employee, invest in yourself, learn your trade and learn your market. Pay the price to mature the quality of your work to be in the top percent (e.g. top 7 out of 10) of your field before you go into business for yourself.
Find a Mentor
While there are many benefits to running your own business there are also many risks and potential painful lessons to learn. If you choose to start your own business, I recommend you find a mentor that has successfully done what you want to do and pay them to coach you. Having someone help you that has been where you are and knows how to overcome the obstacles in your specific trade is one of the most effective ways to reduce the risks and avoid the painful lessons.
My practice is in Severn, MD.
I specialize in the following services for both businesses and individuals:
Tax Preparation & Tax Planning
Accounting & Bookkeeping Services:
Outsourced Accounting and Bookkeeping
QuickBooks Set up and Support Services
We have special expertise in serving the following industries:
Contact me for any help needed at:
Lisa D Church, CPA, EA, NTPI Fellow, MBA
7865 Clark Station Rd
Severn, MD 21144
email: [email protected]
website: https://waterfronttax.com
call 877-727-6577 to talk to office support 24/7 to schedule appointments
Or Schedule a free consultation directly on my calendar at https://waterfronttax.setmore.com/