Archive for the 'Entrepreneurial' Category
As I’ve mentioned in my SEP IRA versus Solo 401(k) comparison, the problem with the additional paperwork involved with a 401(k) is that you have to find an administrator that is willing to do it for you at minimal cost. Compare that with the SEP-IRA, you can usually walk up to many brokers, open up an account, and start trading anything with no annual fees and just commissions.
For example, I opened up my SEP-IRA last year with Vanguard, but I can’t open up a Self-Employed 401(k) with them directly as they won’t be my administrator. The only option I found was to go through a third-party administrator like 401kBrokers, which charges an annual maintenance fee of 0.25% of the account balance. I think the fees are pretty fair considering there is no setup fee or other annual fees, but I still don’t want to pay them if I don’t have to.
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Posted in Entrepreneurial, Retirement | 38 Comments »
If you have self-employment income, there are a variety of ways to save some taxes and put some away for retirement. As I have no employees, right now my top two choices are the SEP-IRA (Simplified Employee Pension), which I used for 2005, and the Self-Employed/Solo 401k. After a bunch of reading, here’s what it boils down to:
SEP-IRA: Allows tax-deductible contributions and tax-deferred growth. Easy to set up at basically any broker. Very minimal paperwork involved.
Self-Employed 401k: Similar tax advantages as SEP-IRA, but with more paperwork, a more limited number of administrators, and higher contribution limits.
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Posted in Entrepreneurial, Retirement | 28 Comments »
If you’re starting a side business, you probably don’t have the budget for a secretary, commercial office space, or all the usual business amenities. But you can still project a professional image by using these cheap and even free services to create what I call a Virtual Office:
Telephone Service
Obviously, one option is to just use your current phone. Calling out is fine, but you’ll have to change your answering machine recording and also warn the other people in your household not to answer the phone with the usual “Yo wassup!”. For cell phones, you may be concerned with call quality or running out of minutes.
Another solution is to sign up for a free voicemail-only phone number (206 area code) from K7.net. You can customize the voicemail recording, and it even accepts incoming faxes. All messages and faxes are sent directly to your e-mail instantly.
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Posted in Entrepreneurial | 35 Comments »
Now that I’ve mentioned tax avoidance, one potential advantage of incorporating your business into an S-Corporation is the ability to reduce the Social Security and Medicare taxes that you pay. I’m going to stick to using examples of one-person businesses.
Simple Example
Here is a simple example. Let’s say you have two self-employed people, Sam and Carrie, who are both freelance photographers. Their businesses make the same net profits of $60,000 last year ($5,000/month). The only difference is that Sam is a Sole Proprietorship and Carrie is an S-Corporation.
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Posted in Entrepreneurial, Taxes | 39 Comments »
What should I do with extra time this summer?
1) Get an internship that will look better on my resume and help get a real 9-5 job. Make decent money.
2) Continue working to grow my freelance business, and perhaps try some new ideas out as well. Make as much money as I work hard enough or smart enough to make.
I realize there are a million shades of grey I’m leaving out, but I think the real question is do I really want to work for myself. Hmm. Maybe try both?
Posted in Entrepreneurial | 21 Comments »
Although I have no real plans to buy an existing business, after a comment on my Thinking Big post I have been much more keen on evaluating local small businesses in my area. What’s their niche? What kind of overhead and time commitment does it take? What are their profit margins? And sometimes - How the heck do they stay in business?!?
I’ve also ran across a couple of sites that list small businesses for sale - BizBuySell.com, BusinessesForSale.com, and BusinessBroker.net. It’s very interesting searching in your local area - you might find a shop you frequent for sale! In reading the descriptions you can learn a lot and also see how hard it is to make a profit as well:
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Posted in Entrepreneurial | 8 Comments »
On my list of Reasons to Incorporate or Form an LLC, #2 is limiting personal liability. If you are a Sole Proprietorship, there is basically no legal distinction between you and your business. If your business owes Bob’s Hardware money, you owe Bob’s Hardware money. That means that your house, your car, your iPod, your whatever - is at risk if your business has debts.
Corporations and Limited Liability Companies (LLCs) are separate legal entities. That means there is a difference between you owing money to Bob and your business owing money to Bob. If your LLC fails and files for bankrupty, your house and iPod is safe. As usual, there are exceptions:
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Posted in Entrepreneurial | 2 Comments »
I forgot about another reason to form an LLC or corporation: Tax Audits. Here are some stats from 2004:
IRS Audit Rates
Sole Proprietors with income < $25k: 3.15%
Sole Proprietors with income $25-100k: 1.47%
S-Corporations (all): 0.19%
C-Corporations, assets under $250k - 0.18%
According to this small data set, sole props are 7 to 17 times more likely to be audited than corporations, and about 3 times more likely than indviduals without business income. Couldn’t find info for LLCs.
Posted in Entrepreneurial | 4 Comments »
I’ve been reading LLC or Corporation?: How to Choose the Right Form For Your Business by Nolo Press, which writes a lot of do-it-yourself legal books aimed for the public. Some of the little details just make my head spin, but here are the main benefits of forming a corporation or limited liability company (LLC) for an individual:
1) More job opportunities. Many companies won’t hire an independent contractor unless they are an LLC or corporation. This is because they are afraid of the IRS classifying you as an employee later, and then charging them possibly years of back employment taxes.
2) Limited liability for business debts. As a sole proprietor, if your business goes under you are personally responsible for all the debts. That means your house, your car, and everything else you own can be taken away to pay off those debts. This doesn’t protect you from everything all the time, though.
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Posted in Entrepreneurial | 14 Comments »
There has been a big jump in money-related blogs recently, and I would like to support that with my new free blog community - mBlogs.org (short for moneyBlogs). I’ve been sitting on this idea for months now, mostly because it won’t be very profitable considering the amount of work I’ll have to put into it. But I think if I don’t give it a try I’ll probably regret it too, so I spent most of today working on it.
If you’ve thought about starting your own money weblog to share tips or track your own financial progress, and would like to join a community that will help you do so and that is free, read on!
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Posted in Entrepreneurial | 11 Comments »
As a follow-up to my Thinking Big post, sometimes my biggest problem is motivation. When you don’t have a boss or deadlines breathing down your neck, it’s easy just to sit back and slack off. As all the gurus say, you should surround yourself with inspirational and like-minded people.
My main inspiration is my wife. She has a respected job she likes, and works very hard at it. She supported me when I decided to go back to school, even though I’m sure it brought her no small amount of anxiety. Other inspirations include my parents and all the self-made people I know that made a great life out of very little.
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Posted in Entrepreneurial | 9 Comments »
Thinking Big
Tuesday, April 4th, 2006
Not only do I want to retire early, I want to have a great life on the way there. Duh, right? What I’m trying to say is that I don’t really worry about money in the long-term anymore. My wife and I are educated, hard-working (well, I can be…), and aren’t too materialistic. I’m already unhealthily obsessed with money matters. We’ll be fine.
The key is to avoid complacency. To be totally clich?, I want to Think Big. I’ve been toying with the idea of not looking for a ‘real’ job when I graduate. No annual performance reviews. No paltry two weeks of vacation a year. No more ‘Casual Fridays’. Be completely self-employed. This begs the questions - How much do I need to make to go solo? And where am I at right now?
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Posted in Entrepreneurial | 21 Comments »
I am still doing some part-time website consulting on the side, and it is simply amazing how many people are interested in hiring me. Almost every new person I casually meet with a small business, when I say what I do, I get “Hmm.. you do websites? Do you do <insert their business niche here> sites?” What is nice is that for some clients I can build up a nice steady stream of income after I set up the initial site, where I charge them a certain amount each month for hosting, site updates, and occasional support. I honestly think I could do very well with this, the only thing stopping me is my mediocre time management skills.
One thing I have learned that since I lose 50% to self-employment taxes, I have to make sure to make it worth my time. For example, say I charge $50 a month. If I end up spending an hour a week on that client, that’s 4 hours of work for only $25 take-home. Working for yourself is fun though.
Posted in Entrepreneurial | 15 Comments »
I have been searching high and wide for a business checking account that offered both a physical presence nearby and decent interest rates. That is looking increasingly unlikely, but I did find nBank, a bank online which offers a Business Money Market account that allows limited check-writing and currently pays a healthy 4.52% APY with a $3,500 minimum. The rates also look to remain high as it is based on the 3-month T-Bill rate.
Of course, it may be too good to be true. Although nBank is FDIC insured, Bankrate.com gives it a ‘weak’ Safe & Sound rating of only 1 star (the lowest possible), and this memorandum details how it is both losing money and has “questionable asset quality”. Yeesh.
Posted in Entrepreneurial | 7 Comments »
Recently I opened a business checking account, and also a private mailbox at a UPS Store. Bank of America even offered a $50 bonus in the branch. The box costs $15 a month. This will just about finish my 2006 Q1 goal of separating business and personal finances. Another reason why I am doing this is for my future endeavors - proper treatment will avoid the IRS treating them as hobbies and not businesses.
The mailbox will serve a couple of purposes. It will allow us to receive mail and UPS/Fedex packages even if we are not home, and prevent them from just leaving it on our doorstep or having to drive to their warehouses. Also, we can give out a business address that is not our home address. Finally, both the rental fees and the mileage to and from the mailbox will be a deductible business expense.
Posted in Entrepreneurial | 13 Comments »
