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Small Business Incorporation – Decision Time

If you are about to start a small business, you have some major decisions to make. One of those decisions will have to be whether or not you should incorporate your business.

As in any business decision you will ever make, there are pros and cons. Determining the structure of your company will have long-term ramifications, so it’s a good idea to do your homework and hire a professional help to make certain you are doing everything properly.

When deciding whether or not to incorporate, the Small Business Administration has a handy check list that can be used that can help to determine what your next step should be.

Some questions to ask:

—How large do you envision your business getting? Do you have dreams of employees and a payroll, or is this going to be limited to a family-run operation?
—How much control do you want to have over the business?
—Do you want to leave yourself or your business open to lawsuits?
—What are the tax implications of your decision?
—What do you expect the profit or losses to be?
—Will you need to re-invest your earnings into the business?
—Do you need to have the ability to cash out of the business down the road?

Once you answer these questions you’ll have a better idea of whether or not you want sole proprietorship or a corporation.

Most small businesses begin their lives as sole proprietorships. This means these businesses are owned by one person, who usually is in charge of the day-to-day operations of the business. The business owner owns the business and the profits—and losses—generated by it.

Legally, in a sole proprietorship, there is no difference between you as an individual and your businesses. The advantages of such an arrangement include ease of organization and total control of every aspect of your business. That includes everything from dissolving the business to filing taxes.
One of the largest disadvantages to not incorporating is that the business owner, and not the business itself, is liable and legally responsible for all debts, which puts personal assets at risk.
Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.

On the other hand, the incorporated business is legally a separate entity from the business owner, making personal assets untouchable in legal matters or bankruptcy. Corporations also have distinct tax advantages, as well.

There are some downsides to incorporating. It can be expensive and time consuming, depending on how you go about it. Several online firms now offer this service, so it’s a good thing to shop around. Also, once your business is incorporated, you are subject to state and federal regulations and all the paperwork that entails. And while there are some tax advantages to being incorporated, doing so may actually increase your tax load.

If you are deciding whether to incorporate, weigh the good with the bad. That way you’ll be able to make an educated decision and spend your money wisely.

Home Business Taxes – Give Yourself a Raise

Your take home pay could go up next week.

What? You mean a raise?

Yeah… sort of… give yourself a raise.

Get serious! Okay, okay…

This info came from a briefing by a top u.S. Home business tax expert at a conference I attended in Tampa in June 2008.

I was quite interested in the concept of being able to immediately increase your take-home pay from your job starting the very next week.

You can use the extra money to build your home business.

Here is exactly how it works.

You are allowed to change your w4 form with your employer. This is a form that tells your employer how much tax to withhold from your paycheck based on government guidelines.

Legally, any time you have a ‘change in financial circumstances that could affect your taxes’ you can ask your employer for a w4 form, fill it out with the new information and give it back to him.

Starting or expanding your business at home is such a change. You adjust this form so that only the absolute minimum legal deductions are withheld at source.

Your boss is obligated to change your withholding rate starting the very next paycheck. He does not verify with the tax department first.

Check with a knowledgeable tax pro in your area on this before doing it, so you do it exactly right and legally for your area.

If you think the above does not apply to you, you have a 75% chance of being wrong. 75% of employees have $2,000 too much in taxes withheld during the year and thus get a refund.

Getting a $2,000 tax return is bad! It means you were overtaxed all year and essentially gave $2,000 as an interest free loan to the tax department for the year! Do they need the money more than you?

And you do this every year? What kind of investment is that? To heck with that!

You could be using that money to create more income for you and your family! You could be building your home business with that money.

How much could you get done in a home business $2,000? Plenty!

And how about aiming for a zero tax return? That means you are not overpaying taxes. Or maybe you will need to pay a few hundred to the tax department at tax time (you can have it in reserves for the purpose). You control your money, not the government.

Okay, so that is just a start.

You can then save $3,000 to $5,000 per year in taxes (additional to above) by creating and running an internet business you have as a home-based businesses.

You can take all of the tons of tax deductions legally due to you as a home-based business owner. You do not need to prove anything to start taking these deductions.

They are laws passed by congress (USA). Canadian law is similar. Check with your accountant and make sure your accountant knows this stuff cold!

Why deductions? In a stroke of genius, congress decided that it would be good for people to have a home-based business so that if they got laid off or lost their job for any reason, they would have something already existing on a part time basis that they could ramp up quickly to a full time income!

This all applies to Canada as well and likely many other areas. Check with a tax expert in your area for exactly how or if this applies in your area.

You do have to keep detailed records of what you are doing so you can prove what you are doing is valid should you ever receive a tax audit.

What is legally required in order to be able to take home-business deductions?

1. Intent to make profit, meaning you do some advertising of your business and do other actions that show you are clearly trying to make money with it.

Keep an accurate record of all this in a day planner or log so you can prove what you are actually doing in case of an audit.

2. Regularly work your business at least 45 minutes per day 4-5 days per week. 4 hours a week is enough to satisfy legal requirements. Keep evidence of hours worked ‘day planner’ type notes.

3. Run your business like a business. Have a separate bank account for it, do not mix business and personal funds, have a separate credit card, records, books, etc.

4. Have an office of some sort in your home that is visually identifiable as one. This means anyone can look and say, yes, that is an office working space. It does not have to be fancy, but it needs to be there.

If you have this, you are allowed to deduct a percentage of many common home expenses such as mortgage, rent, home insurance, electricity, gas, oil, etc., as business expenses.

There are books on this subject in your local library or book store. Do some study and make the full list and take the deductions!

How much of your home expenses can you deduct? For home related deductions it depends on the size of your office in relation to your home. If your home is 2000 square feet and your office space is 200 square feet, that is 10% and you can deduct 10% of all these expenses as tax deductions. It’s legal!

As far as car expenses go, you need to keep a very accurate mileage log in your car which shows every time you use your car and whether it was business or personal as the primary purpose of the trip.

The secret is that every time you use your car (as much as possible), make ‘business’ your primary purpose. It does not matter what the secondary purpose is.

You need to plan all your trips in advance. So if you need to go grocery shopping for example, you schedule your ‘office supplies’ purchase run for the same time and that is then the primary purpose of that trip.

If you need to go to the post office to mail a letter to your mom you need to be checking your business p.O. Box at the same time. Think of these things in advance.

Benefit: every trip by car that you can honestly log as business as the primary purpose increases the percentage you can deduct for all your car expenses for the whole year!

You only have to keep the log up for 3 months running, not for the whole year. This shows the pattern for the year.

So if you can prove with your log that 60% was business use, then you can deduct from your income taxes 60% of all car expenses…repairs, insurance, maintenance, car washes, gas, oil, etc.

That is a lot of extra money in your pocket right there.

Knowledge applied really is power.

I hope this is useful to you.

What Options Are Available to Protect Your Small Business From Theft, Fire and Vandalism?

Businesses have unique security needs, which can vary greatly based on the size of the business as well as the industry they work in and the surrounding area of their office location. Small Businesses have even more unique requirements as the need to get total office protection at a low cost becomes imperative. Of course, sacrificing on quality of monitoring or service is not a viable option, so the cost savings need to come in another form.

There are many available security system options out there and while they are serve an important purpose and have a benefit, not all add on items are necessary for the vast majority of small businesses. As your company expands and grows and you get more employees and/or more office space, this can be re-evaluated for possible upgrades or system replacement.

Most small businesses get along just fine with a traditional security system much like the ones installed in your home. Any of the major home security providers would be able to use their equipment and monitoring services to assist with small businesses as well. And you should be able to take part in the same price packages and offers given to homeowners.

These traditional security system bundles tend to offer a keypad, a keychain remote to activate or deactivate the system from anywhere in the house or even when in your car in the driveway, you can also get a motion detector, up to 3 doors protected and window alarm monitoring as well. Some offers will throw in a smoke detector for those concerned with fire protection and monitoring or possibly a 2nd keychain remote for another person in the company who gets in first or leaves last. The new systems tend to be wireless and have a battery backup feature as well.

With businesses, you probably have a landline, which saves you from the add on that uses your cell phone signal to contact the monitoring center, so that is a plus. However you can add cell backup if you are concerned with your phone lines being cut.

In addition to the standard security system, I would recommend a monitored smoke detector to limit damage and increase response times in the event of an emergency. This is not expensive to add – and might not cost you any more than the standard package, so it is a no brainer.

You could probably get away without adding carbon monoxide monitoring and flood protection, but they are valuable system additions for many small businesses.

While CCTV security cameras can be added to many security systems, most small businesses just do not need this level of additional monitoring. For the cost, it is not always a necessary investment.

You can get a panic button installed as part of your system as well – perfect for businesses, if anything was to happen during normal business hours or when you have staff in the office. Very helpful for peace of mind for your employees.

Whatever options you choose, don’t wait. You never know when something might happen and this is not the type of thing you want to hold off on. Help protect your business and your employees with a small business security system today!