Are you operating your business as a real business or as a hobby? Time to make your business OFFICIAL before the summer push!
Let me ask you two important questions:
- Are you operating your business under your own name, a DBA, or the name of a fictitious firm, basically as a sole proprietorship or perhaps as a general partnership? ME
- Are you or your family at risk due to business or personal assets that are not protected from unexpected losses or legal problems?
If you answered YES to any of the questions, read on for important news about why NOW is the time to form a corporation or LLC for your business.
- Make it official. Operating as a sole proprietorship or general partnership sends a message that you are still “testing” your business, or that you are not sure if it really succeeds. Perhaps your accountant told you that incorporation is an unnecessary expense or that it will not help you save on taxes because of the expectation of low earnings. This is the WORST marketing message you can send when you want to attract new customers and partners to your business, who want to be sure that you are on top of your business and that you are here to stay.
- The Law of Attraction. You get what you focus on. Try, wait and “see if things work or not” BEFORE you decide to step up and make your business official by incorporating broadcasts with a clear message to the universe that you do not take your business seriously or commit to a positive outcome . . The Law of Attraction states that the universe does not return what you desire, but what you program into your deepest belief system through your dominant thoughts, actions, and feelings. Make your business official and really step up says, “I’m ready to receive!”
- Limited personal liability. You may be thinking “I already lost everything in the market crash since 2008” and you are still recovering. If you are one of the few who managed to survive and grow your assets since then, but still have them in your own name, you are playing a VERY RISK game (similar to those with assets in unstable European banks). Even if you don’t have any assets right now, a lawsuit or judgment will destroy any credit you’re looking to build down the road, PLUS you may be looking over your shoulder for years waiting for someone to come after you when you finally start to turn things around. That is no way to live your life. A lawsuit from an unprotected business can ruin your chances of getting a personal auto loan or refinancing your home. Good people who “follow the rules” can still be sued for the most unexpected reasons. You may be thinking “my business insurance will help me”, but is it really covered? Even if your business is never sued, what if you can’t pay a supplier and they come after you? Do you want to be personally responsible? Stop greedy people looking to take what you’ve worked for! This is the best time to form an LLC or corporation to limit your personal liability.
- Reduce your taxes. The bottom line is that operating as a sole proprietorship will cost you more in payroll taxes (up 15.3% on earned income up to $ 113,700 in 2013). That means your income will be taxed at the HIGHEST TAX RATE possible as a sole proprietor. By the way, filing a Schedule C (the form filed for earned income for a sole proprietorship) also means that your business is among the MOST LIKELY TO BE AUDITED. Why? The IRS has a $ 300 BILLION tax gap and they believe the biggest tax scammers are small business owners like you. Why? Their statistics show them that sole proprietorships are MORE likely to report their income and OVER to report their expenses (two big bans with the IRS). Operating as an S corporation or LLC taxed as an S corporation in many situations is a much better approach for two reasons. You will have part of your earnings as distributions that are NOT subject to the 15.3% payroll tax AND you will carry those earnings to program E, not program C, which is more likely to be audited.
- Access more financing options. Operating as a sole proprietorship or general partnership limits you when it comes to financing options. You are also DAMAGING YOUR PERSONAL CREDIT SCORE by operating this way. How do you finance your business as a sole proprietor? You use your PERSONAL CREDIT cards, which will increase your revolving debt, which will, in turn, LOWER your personal credit score. When you form a corporation or LLC, you WILL SEPARATE your PERSONAL and BUSINESS CREDIT. Yes, any type of cash financing with a personal guarantee will come into play, but that DEBT DOES NOT show up in the personal credit bureau, which is HUGE for future financing! As you form a new LLC or corporation, NCP will help you (if desired) quickly build your business credit scores and position your business to secure funds for growth. But the first step is to form a separate legal entity.
- Simply your life. Yes, in fact, operating as a sole proprietor will complicate your life, not the other way around. Separating your business and personal life will make it much easier for you to navigate both financially and legally. You will now have each one in its own compartment where it belongs to protect your overall success.
- Protection of assets. Forming an LLC for your safe assets like investments (those outside of a retirement plan) will help you sleep better at night knowing that you don’t have all of your “eggs” in one basket. If you are using a LIVING TRUST to protect your assets, that will NOT work and everything in your trust may be vulnerable. Do you have other companies that really should operate through a separate bank account in a separate entity? Do you own real estate in your name that may be sending a message that you are wealthy and have assets worth taking? Have you been in business for years or are you operating more than one business in an entity? Are you doing business with a new partner and making the big mistake of running that income through your current business? Avoid these costly mistakes and form a separate company for that separate business.
