Is it time for you to start a company? If you have a side gig, a hobby where you make money, if you sell one of the many products available through multi-level marketing programs, or if you have any number of these or other more passive income streams, you already have a business. However, if you have not legally formed an entity for that business you may not be taking advantage of the benefits that our laws offer to someone in your situation.
Limited liability is a fundamental reason that the business entity as a concept was created. This means that your business is a separate entity from you personally, and the debts or liabilities of the business are (generally) limited to the assets of the business itself. This allows people to take much bigger risks in business without, for example, worrying about losing their home if things take a turn for the worst. It is a built-in protection that helps almost every business and business owner, and no matter your gross revenue this is something that should be important to you. Limited liability does not protect the from fraud or personal malfeasance. But it does protect the business owner from a wide range of potential liability (e.g. employee negligence, products liability, debts, etc…) that might otherwise cause people to avoid the risk altogether.
Taxes are inevitable, but having a business helps you to take advantage of the way our tax code is written to maximize the value in what you do. The tax code is written to incentivize certain things, and in our case, this includes investments in your own business. The Code allows you to deduct the “ordinary and necessary” expenses, in other words, those expenses that are common in your industry and that help you to run your business and be profitable. Depending on the type of business that you start, you may be entitled to other tax breaks as well, including special rates and exemptions for your business.
If something were to happen to you, what would happen to everything that you have built with your business activities? We see this most often with the multi-level marketing businesses that friends and family have worked at through the years. In many cases if you pass away and have not set up your accounts through a business entity that income stream reverts back to the company, or to other individuals in your network. Business entities can be set up for perpetual existence, and could theoretically last forever. They are an easy way to protect and transfer assets. Proper estate planning, including forming an entity, is essential to ensure that your legacy is preserved.
We are entering the age of Me, Inc.; that is, an age where everyone should (and will eventually) have a business and run the majority of their professional life through a business entity. Almost everything we do in life can be seen through the lens of profit/expense. As younger generations move into their earning years they are increasingly more comfortable with the “gig” economy and farming out time and tasks to other, or sharing space and resources for pay. Have an extra room in your house? Put it on Airbnb. If you need a new vacuum, that is a business expense paid for with pre-tax dollars. Need to drive three hours away for a meeting? Take a passenger and pay for the trip with Uber. Now, if you need new tires a portion of that cost can be deducted as a business expense. These are simplistic examples, and are not meant to be used as tax or legal advice, but the gist of what I’m saying is true. There can be huge advantages to running much of your life through a company structure, and this will become more and more common.
Staring a business may sound daunting, but in reality, it is fairly straightforward and can be accomplished in only a few days. Contact us today to find out how we can help you take this next step.