Stepping Out On Your Own

If you’ve always dreamed of starting your own business – maybe it’s a 2014 New Year’s resolution – you’re certainly not alone.

Owning a business is a great way to take control of your career. It gives you the opportunity to set your own rules and do what you truly enjoy. Still, giving up a steady paycheck can be scary – but employer-provided health care may be easier to forgo since the Affordable Care Act became a reality. Like anything else, however, you can manage these fears with good solid planning.

Structure your business

There are several approaches to setting up your business, ranging from simple to complex:

  • Sole Proprietorship. The most common structure is the sole proprietorship. You and your business are viewed as a single entity; you don’t have to file separate tax returns and generally don’t need to create an “official” business entity. (Although you may need a license, depending on the type of business you’re starting.)
  • Limited Liability Company (LLC). This arrangement creates a separate legal entity, at the state level, and affords you some protections. Setup requires certain paperwork, which you can fill out on your own or hand off to an attorney.
  • Along with the increased complexity come advantages. An LLC offers some liability protection for you as the owner. And for tax purposes, you can operate your LLC like a sole proprietorship or choose to have it taxed as an S corporation. Choosing the “S corp” option involves more paperwork but can help reduce taxes for higher earners.
  • Corporation. There are a variety of filing requirements and fees to form a corporation, and you’ll likely need to keep a ledger, have board meetings, and more. That’s a lot to manage if you’re the sole owner of the business. In exchange for the red tape, a corporate structure does offer tax benefits. Instead of being taxed at your personal tax rate, for instance, a corporation is taxed at corporate rates. You also have the option to pay out dividends and sell stock to investors or partners.
  • Separate your finances. Regardless of what business structure you choose, it’s very important to keep your personal finances separate from your business finances. That means creating a checking account for your business, and, for convenience, getting a debit or credit card.
  • All business income and expenses should go through your business account — no exceptions. While it may be tempting to pay for something out of your personal account with the intent of reimbursing yourself through your business account, it’s not worth the eventual hassle. And if the IRS ever comes knocking, you’ll be glad you kept your records separate.

Get an Employer Identification Number (EIN)

Even under the simplest business structure you’ll likely be asked to fill out W-9s (forms used by a company to request your taxpayer identification number). Without an EIN, you’ll need to provide your Social Security number. If you’d rather keep that information to yourself, consider an EIN. In most cases, you can go through the whole process on the IRS website ( and get your EIN instantly.

Find a good financial professional

Finding a good advisor can be one of the most important moves you’ll make. Whether your business is a moonlighting venture or your new full-time career, professional advice can help you take the right steps, right from the start.


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