iQuanti: Whether you have a passion you want to monetize or just want some extra income, it's good to plan for ways to set your business up for success, and protect your personal assets. Starting a business also means many of your expenses can be tax deductible.
A tax deductible expense is an expense that can be subtracted from the adjusted gross income of an individual or business when completing a tax form. Generally speaking, expenses related to the function of your business such as equipment, merchandise, and advertising costs are likely tax deductible.
1. Calculate your startup costs and save up for them
Startup costs are the expenses you will incur to launch your business. They may include things like purchasing supplies, building a website, or licensing fees.
Many businesses use loans or investors to help them take care of startup costs, but if you're starting small with something like a side job, you may be able to save up for the expenses yourself.
2. Plan to separate personal and business finances
It's important to separate personal finances from business so that one doesn't adversely affect the other. A healthy business will sustain itself without being a drain on your personal finances, and while you can pay yourself from your business you shouldn't use your business to pay for personal expenses.
You don't necessarily have to open a business banking account, but having some sort of separate account helps make accounting for your business easier.
3. Consider forming an LLC
While not necessarily required for starting a business, forming an LLC or Limited Liability Company can help protect your personal assets and save you money in taxes. Some business licensing requirements may include forming an LLC and operating as one.
The cost and process of setting up an LLC varies from state-to-state, and if you're starting a business with someone else, you may need to also set up a business bank account so that you and your partner(s) can separate business income and assets from personal.
You can set up an LLC yourself or with the help of a certified public accountant.
4. Get the right kind of life insurance
If you have a family, having life insurance is essential so that if something happens to you, your spouse and/or children don't face financial hardship.
If you share ownership of your business with any number of partners, each partner should also have life insurance policies that will protect each other and/or the business itself.
Is life insurance tax deductible? Unfortunately the IRS currently considers life insurance premiums to be a personal expense and therefore it is not tax deductible, even if your life insurance policy names the business as the beneficiary. However, you might find other tax advantages with certain life insurance policies that can be used for estate planning and building your personal legacy.
To find out more, consult a professional financial planner.
The bottom line
One of the most fundamental principles in financial preparation for a business of any size is to separate it from your personal life. Be sure you're ready to make the necessary purchases to put the right protections in place so that you can focus on growing your business without it interfering with your personal life.
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Original Source: 4 Ways to Financially Prepare to Start a Side Job or Business
