A small business will save you taxes with better write-offs, and help you build wealth with more personal cash flow. I realize that may sound bold or even a little crazy, but the one thing I’ve learned in over 20 years as a CPA and Attorney, is that my wealthy clients save taxes and built their wealth with a small business. By the way, owning rental property is considered a small business.
It’s more than that, there are so many good reasons to have a small project brewing on the back burner, and very few reasons not to. Some say it is too ‘risky’ in today’s economy to start a business. I say it is too risky NOT to start a small business!!
Multiple Reasons Why a Small Business Makes Sense
Learning how to save taxes with a small business is crucial. Here are a few reason why a small business might make sense for you:
- How about having another source of income to fall back on?
- Embarking on a project you love.
- Turning your hobby into a business that actually makes money.
- Enjoying the independence to run a business the way you think it should be run.
- The ability to hire your own family members to teach small business and pass on a legacy.
- To save taxes and lower your effective tax rate on your income.
- AND the MOST important reason in my opinion: Build more wealth!
Wealth building, yes…my number one reason! Not saving taxes (I know that may shock you). I propose that when you think long and hard about it, many of you would agree that it is difficult to build significant, self-sustaining wealth when working exclusively for someone else.
Don’t Quit Your Day Job
First, for those of you that work a ‘regular job’ and DON’T want a small business…please hear me out. I’m not saying you can’t have BOTH a ‘day job’ AND a small business.. In fact, I often times encourage clients to have both.
When you exclusively work for someone else, you are building their wealth and not yours. Notice I used the word ‘exclusively’ in the preceding sentence. If you can generate some extra income to pay off debt and save for the future, you truly create financial freedom. With a small business, your potential can be unlimited!
That’s right! I’m not asking you to quit your ‘day job’. With a day job, you can have security and benefits. See ‘Why Quitting Your Day Job May Not Be a Good Idea”.
At the least…I’m just asking you to consider having a rental property or a small business ‘on the side’ with your day job. Together, you aren’t limited in your income AND you also have a safety net.
The Tax Saving Benefits are Real
Yes… “Tax savings” is an extremely powerful reason to start a small business. As many new small business owners quickly discover, the small business will allow you to legitimately convert otherwise personal expenses to valid business expenses.
When you have a small business, there are expenses such as travel, home office, dining, entertainment, cell phones, computers, and all sorts of expenses that you can write off legitimately with a small business purpose.
“Personal Conversion Expenses” are expenses you would have paid for anyway, but now with a business and a valid purpose for the expense, you can convert them to a legitimate write-off.
Of course, I’m not proposing setting up any sort of business to simply lose money for tax write-offs. To build a business that allows you to make more money, and save taxes by writing things off you wouldn’t otherwise be able to. Thus, driving down your effective tax rate on your cash flow.
Be Strategic With Your Business Venture
On a cautionary note, before you get started, please know there are obvious risks and A LOT to learn about the proper way to start and operate a small business. Let me mention a few important steps along the way:
- Build a business plan for every idea you have. Some business plans will indicate you should NOT start the business.
- Don’t give up on your education. Learn all you can about small business and real estate…they go hand in hand.
- Start small and don’t quit your day job or put your life savings into the business.
- Test your idea and product. Build a focus group over and over again until you get the right product and price point.
- AND finally, don’t give up, remember it takes time.
AGAIN, I’m not asking you to quit your career, job, or the trade or skill you have been cultivating for years. however, please at least start building a project on the side that can give you additional income to invest in the market, buy real estate or simply build equity in the business itself.
Don’t give up on this concept of “Starting a Small Business”. If you want to save taxes start thinking of that perfect small business, and let the idea simmer a little. You may find it could just be your ‘cup of tea’.
