Are you considering making the transition from the role of
employee to small businessowner in this evolving economy? Start
by strategizing and prioritizing your financialplanning
responsibilities.
With the collective guidance of a qualified tax adviser and
CERTIFIED FINANCIAL PLANNER
TM
professional from the Financial Planning Association, you can
assemble a well-organizedsystem of tracking what you spend to
produce income. In addition, you can sensiblysave money by
learning more about eligible tax deductions you should take for
yourself-employed business.
Apply the following pointers and perspectives to efficiently
develop and manage yournew business:
- As a small firm owner, you are accountable for the
accurate and timely filing ofall taxes owed on income and
employment taxes for your workers. Utilize
financialmanagement software, such as Quicken or Quickbooks,
to help you with implementing anongoing system that captures
income and expenses. Remember to document all
cashtransactions and stash receipts in an identified file
folder or in labeled envelopes(marked with the month and
year).
- Paying additional taxes and being able to claim tax
deductions are both new challengesand opportunities for you
as a self-employed business owner. Make sure that youfile
quarterly federal and state estimated taxes. Further, if you
have employees,you will need to withhold taxes from each
paycheck they receive and make timelypayments to the IRS and
the proper state authorities. Verify that you also
sendpayments to cover Social Security tax, Medicare tax, and
any other mandated localpayroll taxes withheld from your
paychecks.
- How can you optimally plan for taxes while protecting
your business and personalassets against potential liability?
Consult with a seasoned attorney or tax
professionalspecializing in risk management to figure out the
type of entity (i.e. SubchapterS Corporation, C Corporation,
Limited Liability Company, etc.) that would be
mostappropriate for your business activity and financial
situation.
- Do not commingle business income with your personal
spending. Open a separate bankingaccount in the name of your
business and obtain an accompanying Federal
EmployerIdentification Number (EIN). Establish credit now
with this EIN in your businessname apart from your own
personal credit.
- What types of retirement plans are available for you to
allocate a substantial portionof your net income on an annual
basis? Realize that you have a diverse array ofchoices for
tax-deferred savings of self-employed earnings contingent on
your needs.You can decide to significantly fund a Simplified
Employee Pension (SEP-IRA) planor Keogh plan up until the
tax-filing deadline and deduct these contributions onyour
personal income tax return. Alternatively, depending on your
level of self-employmentincome and tolerance for
administration expense, you can set up a Solo 401(k) planor
Savings Incentive Match Plan for Employees (SIMPLE IRA) with
the total fundingamount comprised of employer and employee
contributions. Be certain you understandthe rules and
penalties that apply to taking your money out of these plans
early.
- Can your children set up a Roth IRA to contribute wages
from a job and begin savingfor retirement? Employ your kids
and encourage them to fund a Roth IRA with theirearned
income. Keep organized records of earnings, including a log
of the datesand hours your children work.
- With health insurance, you can elect to continue your
existing Consolidated OmnibusBudget Reconciliation Act
(COBRA) coverage from your previous employer's planfor as
long as possible (up to 18 months, or more in some states).
Be cognizantthat you can deduct 100 percent of your health
insurance premiums up to your self-employedbusiness' net
profit. Recognize that this deductibility is not permitted
ifyou are eligible for health care coverage through other
means, such as your spouse'semployer. For family members who
work for your small business, you may be able todeduct full
medical premiums, including some long-term care
insurance.
Reap fulfilling professional rewards and achieve lifelong
dreams by utilizing thesebeneficial tips to launch a successful
small business!
FPA member Elaine King , CFP
®
, CDFA
TM
, is Chairmanof FPA of Miami-Dade and Author of Family &
Money Matters, La Familia y El DineroHecho Facil. FPA member
Philip Herzberg, CFP
®
, AEP
®
,MSF, is President-Elect of FPA of Miami-Dade and Director of
Media Relations &Public Awareness for FPA of
Florida/Miami-Dade. They serve on the Estate PlanningCouncil
of Greater Miami Board of Directors.