Small Business, Is It Right For Me?

By David G Komatz

Small businesses in the US are what run the economy. Big corporations are a big help, but you will notice that there are more small businesses than big corporations. So, how do you go about starting a home based business? There are many ways, some worthwhile, some a waste of time and money.

What should one consider when deciding to start a home based business?

What does an entrepreneur need to consider before starting a business? The following will provide some guidance:

• What type of business do you want to start?

• What do you know about this business?

• Is it something you have a passion about, or something that only sounds like easy money?

• How many hours will you have to work to make this business work?

• How much money do you need to get started?

Along with these considerations, one must also consider the type of entity that will be utilized. While you do not need an attorney to start a corporation, LLC, partnership or other legal entity, you should understand what is involved.

When first starting in business, keep things easy for yourself. A sole proprietorship will work fine. Once you start making a substantial profit, then you can consider changing the type of business.

1. What are the advantages to incorporation?

2. Is an LLC right for you?

3. How would a partnership benefit your business? Should you have a general partnership or a limited liability partnership? How many partners should you have?

4. What are the costs for creating a business entity as listed above?

5. What are the tax advantages and disadvantages of these entities?

6. Should I hire an accountant to handle the bookkeeping and if so how much will it cost?

7. When it comes time to have tax returns prepared, should I use a CPA, public accountant or a tax preparer from one of the large tax preparation businesses?

Other considerations depend on the type of business.

1. Do you need a separate office in your home?

2. How do you set up the office?

3. What are the IRS regulations for a home office?

4. How much time do you need to spend in the home office to qualify?

5. Should you obtain a separate phone line for the business or can you use your home phone?

6. What office supplies are needed?

7. Should you buy a fax machine, scanner, and computer or can you use the one you own personally?

8. What government regulations affect your business?

9. Should you consider a franchise and if so how much will it cost?

How much money can be saved on taxes with a Sub S Corporation?

Consider this important fact. If you have a sole proprietorship and make a profit of $20,000 for the year, your self-employment tax will be $3,060. That is calculated this way: $20,000 X 15.3% (the self-employment tax rate) = $3,060. That is a large amount of money. If you decide to form an S Corporation, the self-employment tax disappears. Remember, you are no longer self-employed. The tax due will not be on the corporation. S Corps pay not tax. The profit from the corporation flows through to your personal return and will be taxable at whatever rate you incur on your return. However, keep in mind that the $20,000 is offset by the standard or itemized deduction and exemption deduction. If you are married with two children but don't have itemized deductions, your final tax bill will be calculated this way: $20,000 -$11,900 (the 212 standard deduction) - $15,200 (4 exemptions X $3,800 the 20 exemption deduction) = -$7,100. There is no tax due since the amount is less than $0. That is how to save money on taxes as a small business.

These are some of the most important questions that should be considered before starting a business. In the beginning, a new business owner should start with a sole proprietorship simply because the tax requirements are not difficult to meet and statistics show that most businesses lose money the first few years. After you begin to make a profit, then you should consider one of the other legal entities listed above. While you do not need an attorney to create these entities, you should strongly consider at least consulting with an attorney and of course an accountant as well. You want people you can trust and rely on if needed. Be sure that the accountant is available year-round, not just during tax season. Each of these topics will be addressed in more detail in upcoming articles.

We can help you with starting your home based business. You can submit your idea to us and we will tell you if it is viable. Visit our website to find out more: http://crossroadsacctg.webs.com.

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