Checklist for Properly Structuring a Small Business

As Peter noted in a recent post, Keep More of Your Money by Understanding How Taxes Work, working a small side business in addition to your W-2 job can help you make more money as well as save you valuable tax dollars by deducting business expenses using Schedule C.  The tax laws for taking business deductions with confidence aren’t complex, but one of the most important of those to keep in mind is that you need to run the business like a business and not a hobby. To show that you have serious business intent, use the following basic checklist (which presumes you will have only one employee, yourself) to make sure you are structuring your small business properly. Note:  This list may not be comprehensive since each state has its own requirements.

1.  Business License:  Many states require licensing of a business.  Sometimes the license must be obtained from the state, and other times the city or county will issue it.  Many home-based businesses and network marketing ventures do not ordinarily need a license.  Check with your state or city government.

2.  Fictitious Business Name:  If you use a name for your business or sole proprietorship other than that of your own name (which is recommended to protect your personal assets in case of liability lawsuits), you must generally register the company name with the county.

3.  Trade Name and Trade Mark Protection:  If you want to protect your trade name and any special trade marks that you want developed to brand your business, you will need to file a “Registration of Trademark or Service Mark” with the U.S. Department of Commerce. For further information or to reach the Commissioner of Trademark and Patents, call (800) 786-9199.

4.  Copyrights and Patents:  If you have developed some special invention or have some written material that you don’t want people to copy, you must file for a patent for invention or a copyright for written materials.  This can be done by contacting the Commissioner of Trademarks, and the Patent and Copyright Applications office.  Patent registration forms and questions:  (800) 786-9199.  To obtain copyright forms call (202) 707-9100.  If you have a copyright question, call (202) 707-3000.

5.  Business Insurance:  All businesses should have some form of insurance to cover them from theft of equipment and for liability issues.  Most homeowner policies exempt business equipment from their coverage.  Check with your property and casualty agent to see how extensively you are covered and what insurance you may need to obtain.

6.  Sales Tax Number:  In many states, you may be required to collect and remit sales tax.  Thus, you should get a sales tax number in the states in which you will be conducting business, especially your home state.  Many network marketing companies take care of this for you with the state in which you will be working.  If you are joining a multilevel marketing company, check with them about this number.

For more information, contact Money Mastery: 801-292-1099.

Keep More of Your Money by Understanding How Taxes Really Work

As I have mentioned over the past several posts, it is so important to know the 10 financial principles that can change your life is so many wonderful ways. That’s why I have been spending time covering each of the Money Mastery Principles. Today I want to review Principle 9:

Understanding Taxation Enables You to Retain More Money.  The easiest way to earn more money is to keep more of the money you already make!  That means giving the IRS what it expects only when it is due and no more.  Tax refunds are mythical benefits that come at a great cost to American families.  Don’t be fooled by this myth and countless others.   Knowing the real rules about taxation will free and empower you.

Everybody wants more money.  The drive to make more money often keeps the focus off the easiest route to get more of it, which is to keep more of the money you make in the first place! But making more money in the W-2 world forces a person into a higher tax bracket, while keeping more of the money you already have does not.

How can you keep money from going to the IRS?

First, realize that there are two separate tax systems, one for W-2 employees, and the other for the self-employed or small business person.  Some W-2 employees do well at their day job and then moonlight in their small business so they can make additional revenue and pick up additional deductions to save taxes big-time!

W-2 employees can only use Schedule A for itemizing deductions, but self-employed or small business owners gets to use both Schedule A and Schedule C to itemize deductions and save valuable tax dollars.   If you examine Schedule C and you’ll  find 19 extra lines of deductions.

 Schedule C (2)When you get to use Schedule C and have an additional 19 extra areas of tax deductions over a W-2 employee, you definitely keep more of your hard-earned money.  Check out Schedule C and try to picture yourself working at a small business.  Here are some ideas:

  • Freelance writer/editor
  • Classic car restoration
  • Woodworking
  • Teaching musical instruments/voice
  • Auto mechanic
  • Grant writer
  • Public speaker
  • Pet groomer/pet watcher
  • Hair stylist
  • Sewing/quilting
  • Cosmetics salesperson
  • Graphic designer
  • Caterer
  • Flower arranging
  • Wedding event planner
  • Dog breeding
  • Landlord
  • Housecleaning
  • Handyman/maintenance

Remember the goal is to make money, not just create business expenses.  In all additional qualified business deductions, there must be the main attempt to create additional revenue.  So don’t try to trick the system and fake a business just to get greater tax deductions.  The IRS audits tons of small businesses and you don’t need these problems in your life.  My point is, you will not have any problem running a small side business out of your home as long as you run your business like a legitimate business, and not a hobby. Take it seriously. Work it regularly (but doesn’t have to be lots of hours, just consistent hours so you can make a profit), and learn the tax laws for Schedule C deductions (which are few and simple).

 After all is  said and done, there is a high probability that when you have a small business you really will have extra money from profits and more tax deductions.  Learning the tax rules will be well worth your effort.   Contact me for more information at

More on the Value of Deducting Travel Expenses…

In my last post, Why Deducting Travel Expenses Makes So Much Cents, I introduced you to the idea of starting a small side business for the purpose of making more money and saving valuable tax dollars. If you operate a business you have the opportunity to write off all kinds of trips that would not be possible if you were nothing more than a W-2 employee. That’s because the tax laws governing travel deductions are fairly liberal (believe it or not!) for the self-employed.


So how can you deduct travel expenses for your small business?

Let’s begin by defining what kind of travel is tax-deductible. First of all, the IRS says travel must be “business travel” in order to claim it. Business travel occurs whenever you travel away from home, overnight, or for a period of time sufficient to require sleep. “Aha!” you might be thinking, “I’ve been out of town on vacation in the last few years and had to sleep overnight, I bet all of that vacation would have been taxAirplane deductible.”

Well, no, it wouldn’t be unless you conducted some business while on that trip. “Yes, but what about the time I went to Hawaii and while I was there I passed out my business cards?” Can you write off such a trip since you seemed to conduct “business” while there? The answer is probably not, because in addition to sleeping overnight somewhere, you also must have a “primary intent to do business” before you go on the trip in order to claim the expense.

Suppose in order to do more business you need to travel from Washington D.C. to New York where you must give a seminar during the day; let’s further suppose that you then traveled home in the evening of the same day. Does that constitute business travel? No, because you didn’t sleep overnight anywhere. What if you travel 70 miles down the road from your office to a nearby city to give an early-morning lecture and you sleep over in a hotel in that city the night before to be sure you make it to the lecture on time? Is that considered business travel? You bet. The IRS has no minimum mileage requirement for travel as long as your intent to do business was present before you made the trip and you slept overnight. You can travel 10 miles or 10,000 miles, it doesn’t matter as long as you sleep overnight in a bed other than your own.

How can you show “business intent” before you travel? I’ll use the following example of a woman I’ll call Loni to spell this out.

Loni is a public relations consultant who just happens to love Las Vegas. When she found there was a tradeshow in Las Vegas where she could meet some potentially important editors to discuss one of her client’s consumer electronics products, she decided it would be a perfect opportunity for her to take in some of the new attractions she had been dying to see.

Before the tradeshow, Loni contacted by e-mail 10 different editors she wanted to speak with at the show and set appointments to meet them in her client’s booth. She conducted press briefings with these editors on the first two days of the show, and on the remaining three days, spent her time having fun on the town.

Was Loni able to write off the entire trip to Las Vegas? You bet. That’s because she met all of the business travel criteria.

  • She was away from home overnight.
  • She contacted, in writing, people with whom she wanted to conduct business before her trip.

Tip: Keep a copy of letters or e-mails showing that you had some business intent before making the trip.

Now, even though Loni was able to write off this trip because it was considered business travel, she still had certain IRS requirements to meet that dictated what expenses she could claim and what percentage of those expenses could be deducted.

In my next post I will go into more detail about these requirements, so stay tuned!

Deducting Travel Expenses from Taxes Makes So Much “Cents”

It is so simple to deduct your travel expenses, if you have a business activity of some kind.  You must do a little planning in advance and keep good documentation but this will allow you to save taxes big-time!

First, you need to think outside the W-2 box and decide on a way that you can start a small business on the side to make more money and save taxes as well.  You can start out as a sole proprietor, use your own name and Social Security number and get down to business.  You don’t need a merchant account to collect money using a credit card, although this is helpful.  You don’t need to have a bank account with your business name on it, although this is helpful.  The main thing is to start.  Once you get going, you will learn a lot!

Your business activity needs to have a purpose to make money.  You areTaxCuts not required to make money initially, but must have a goal to earn a profit.  This profit potential is how the IRS defines your activities.  You are the person on the firing lines.  You have to manage your cash flow so you can make money.  You will need a cell phone to call and set appointments, so this is a valid business expense, as are meals, dry cleaning and so forth.

Keep in mind that as you work at this business enterprise, you just might make more money.  Wouldn’t that be fun to make more money? You will have expenses as you try to make money and here are just a few of those expenses you can deduct:

  • Office supplies
  • Business miles on a car used for business purposes
  • Parking fees
  • Some entertainment expenses
  • Travel expenses

The last bullet point on the list, travel expenses, can be one of the best and most enjoyable ways to save tax money while operating a small business.

Duane, a coaching client of mine, called me from Louisiana and told me he was planning a vacation to Hawaii and asked what he could do in order to deduct some of his travel expenses  I checked with Sandy Botkin, a tax attorney, and Sandy said all he needed to do was schedule appointments in advance of traveling to show business intent, then keep good records of his trip.  Since Duane is a dentist, he researched other dentists like himself on the island of Maui and found two dentists willing to meet with him and conduct a dental practice interview.

Duane returned home after his trip with a glowing report.  One dentist in particular he interviewed showed him how he had doubled his revenue by installing implants for his patients who did not have any teeth.  The extra high quality of life that was added to this patient was immense so Duane decided to get additional schooling on dental implants and has since doubled his revenue.  The education and information he picked up in Hawaii was rewarding for Duane, but what was even more wonderful is that he could write off almost the entire trip as a business expense because he followed the tax rules governing business travel.

Creating a business activity can be fun and rewarding, especially as you deduct valid travel expenses associated with your activity.  For more information on this topic, explore the book MONEY:  What Financial “Experts” Will Never Tell You available here on

How to Separate Your Small Business from Yourself

As I have mentioned in previous blog posts, a business is not you and you are not the business. You own and control the business entity but you are not the business itself. Differentiating yourself from the legal business entity is crucial since a business is considered a legal entity by definition of tax and business law.

Important:  The idea of a “business” starts by separating the new venture into three distinct parts:

1. You
2. Business entity (sole proprietorship, LLC, partnership, corporation)
3. Income sources

I use this checklist to help my clients understand how to separate their business from their personal life.

1.  Avoid naming the business after yourself — always choose a name for your business or sole proprietorship other than your own name.  Here’s why:

  • Helps you mentally keep the idea of operating a business separate from your personal life.  Remember, the two are not one and the same thing.
  • The business is more attractive to lawsuits if ownership is readily identified within the business and therefore a plaintiff can more easily identify assets.
  • The name of your business is not as important as the product or service you offer; don’t get caught up, therefore, in naming the business after yourself.

2.  Avoid co-mingling personal and business money because it creates problems:

  • It dilutes tax deductions.
  • It makes your business appear to be a hobby rather than a legitimate profit-making venture.
  • It prevents you from seeing when you are profitable or not.
  • It creates problems when IRS audits come along.

Thus, set up a separate checking account for your business and dedicate separate debit and credit cards for the business.

3.  Register your business name with the proper controlling authorities.

4. Obtain a business license from your city.

5. Set up a separate accounting system for your business including a balance sheet, and a profit and loss statement. For more information on these two important documents or any other questions, please contact me:

How to Assess the Value of a Possible Small Business Venture

In my previous posts this week, I’ve been spelling out how to determine what kind of small business venture you may want to launch. When explaining this concept to my clients I emphasize that the next important action they will need to take is determining if their venture will have enough value to make it worth their time and money. I highly recommend you do the same by taking a good hard look at your Spending Plan because it will reveal to you your current needs and wants and help you answer the 5 very important questions I have posed here:
1. How much money do I need or want to make for myself and/or family per month (or annually) in this new venture?
2. How much money can I afford to lose in this new venture and still stick to my Spending Plan?
3. What are the resources reflected in my Spending Plan that can help me launch my business (can I take money from a 401(k), HELOC, cash reserves, etc.)?
4. Can I live with the risk associated with this business? Why or why not?
5. How is your business going to help me make a profit? 

How to Discover What Business Venture is Right for You

In the last few posts on the Money Mastery blog I’ve been trying to help you see why starting a small home-based business (in addition to keeping your W-2 job) is a good idea. You may be excited by this prospect, but I’ve found with my clients that choosing the small business venture that’s right for them is  the biggest issue they face.

Most people want to make more money and save tax dollars but they have a hard timeQuestion about Starting a Small Business Ventures deciding what type of business entity to form or what income source they should engage in to bring money into that entity. Some get so anxious to begin a business they jump at the first opportunity that may present itself, whether that be a neighbor’s invitation to become part of an MLM, or selling widgets they enjoy making out of their garage. Unfortunately these people rarely give meaningful thought about what they actually want to accomplish by starting a business and what they might enjoy doing in it initially to get it up and running.

On the other hand, some people are so tentative and conservative about launching out on their own that they spend months and months, even years, thinking about and planning for a new business and never actually get that business off the ground. Neither approach is very productive. For example, you can read all about how to ride a bike, but until you actually get on one, you’ll never learn to ride one! Adding training wheels and falling a few times can sometimes be the most effective way to learn.

One of the best ways to begin a business in a timely manner is to do the following:

1. Consider what hobby or activity, skill, idea, property, equipment or source of income you have that you can turn into a viable small business venture (regardless of whether you are a W-2 employee or not).  I ask my clients to right down every idea.

2. Come up with two ways you can take advantage of the tax deductions allowed on Schedule C within these ventures. If you do not know how Schedule C works (itemizes deductions for the self employed), contact me and I will be happy to explain the value of deducting business expenses for the purpose of reducing taxes:

3. Next, assess your own skills and abilities that would allow you to build that business. I like to help my clients do this by having them rate their ideas for possible businesses on a scale of 0 to 5  (0= none; 5=high) for each of the following:
$ Capital needed:
My knowledge:
My skills:
Ease in starting:
Average total score:
In my next post I want to explain just a little bit about what you need to do to assess the value of a business venture you are thinking of pursuing and whether it has the possibility of providing a return on investment.

What It Means to be “In Business”

In my last post, I tried to explain why starting a small home-based business venture is one of the keys to mastering your money, and one of the ways you can bring real benefits into your life, including making more money and paying less taxes. I hope you are seriously considering starting one.

Sometimes I find my clients who are excited about the prospect confused about what it really means to “be in business. This stems mostly from not knowing what a business really is.

There are three distinct parts to every business venture. Understanding each and differentiating them from each other is vital to the success of a business:

1. You. You are the controlling entity that owns the business. But remember a business is not you and you are not the business. You own and control the business entity but you are not the business itself. Differentiating yourself from the legal business entity is crucial.

2. Business Entity. This is the legal structure of the business. For example, your business may be formed as a Sole Proprietorship, an LLC, a partnership, or a corporation. The business has a name, and has license from local controlling authorities to operate as a business entity for the purpose of bringing in various income sources.

3. Income Sources. Your business entity needs to bring in money to survive. It could have just one income source or a variety of sources, it doesn’t matter. What’s important is that the income sources themselves not be considered the business itself. For example, you own a business entity called “Getting Ahead Enterprises, LLC” that operates as a Limited Liability Company (LLC). This LLC’s income source for now is property management, which you do part-time on Saturdays when you’re not working your W-2 job. You own the LLC and the income source is your part-time property management activities. Later you may add additional income sources to the business, such as trading in foreign currency, rental properties, or providing consulting services.

I created this little graphic to further illustrate the point:

Business Entities and Ventures

By separating yourself from the business and properly structuring it as some type of legal entity, you will be able to more clearly define what kind of income sources you will participate in to help your business survive without seeing those income streams as a definition of who you are. Remember, the business is a separate legal entity by definition of tax and business laws and must be treated as such.

Contact me if you need more information about this concept:

Why You Should Start a Small Business

Many W-2 employees have this common misconception: that running a small business venture is only for “that other guy,” the one who doesn’t mind taking risks and isn’t afraid to go out on their own. What I try to teach my clients, however, is that those who have learned to master their money and handle their personal finances wisely usually operate a small business venture of some kind, even while remaining a W-2 employee. Starting and operating your own business venture is one of the keys to mastering your money.

Following are the primary purpose and benefits of starting your own small business venture:1.  To make a profit.  Your primary purpose in building a business is to first, make a Bulding a Business profit. Statistics show that the majority of millionaires are not trust fund babies, but people who started their own business — this helped them control how much money they could make and exactly how they would spend their time. Being in business opens so many more opportunities to acquire additive and/or replacement income, which then leads to growth and prosperity, than being a W-2 employee alone.

2. More chances to “invest” vs. “save.” Starting a small business (“small” defined as any company with 200 employees or less), even if only as a part-time venture in the beginning, takes the control of money-making opportunities away from others and puts it back with you where it belongs. Rather than relying on a W-2 job alone and hoping that if you work hard enough you will earn the cash surplus you need to create wealth, operating a small business makes you a true investor in your own future. It allows you to better control and manage opportunities to create wealth and changes your thinking so you can go from being a simple “saver” to a dynamic “investor.”

3. Save tax dollars! An important benefit you’ll receive from starting a business is the opportunity to save valuable tax dollars. This is the most immediate benefit you’ll realize. Did you know that approximately 42 percent of all revenue for the federal government comes from individuals and that only about 6 percent is attributed to corporations? With your own business, you will be able to deduct expenses that you would not otherwise be Starting a Business and Taxallowed to deduct on a W-2 level.

What this means is that the tax system is designed to give you incentive to start and build a business! When I help my clients understand this, they get very excited about launching something, whether it be a dog-sitting service, cutting hair out of their home salon, or selling products from home, it doesn’t matter. The important point is to get started!

It is important for you to understand that the government wants Americans to go into business for themselves and the system is designed to support those endeavors. Are you taking advantage of this built-in opportunity?

4. Become a part of the growth, development, and resiliency of the U.S. economy. Another very important reason why you should start a small business is to be part of U.S. free enterprise that allows the freedom to choose how much or how little money you make. Why is this so important? For two reasons: Small business owners act on their own self interest to 1) build companies that create wealth for them and their families, and 2) benefit the government through the creation of more businesses that employ more people which in turn bring in more taxes. In the case of capitalistic enterprise, everyone wins — ironically due to the self-interest exhibited by both the private citizen and tax-collecting government entities.

Small business owners are the backbone of the U.S. economy, responsible for building America into the world economic power it is today. Congress wants you to have a business so you can contribute to the long-standing history of free enterprise that has made the U.S strong. This nation supports the setup and operation of business better than any other country on earth. Differing from other countries that make it a burden to launch a business, the U.S. does not require several years of compliance with government regulation in order to legalize and operate a company. Instead of enacting laws that limit growth, the U.S. tax laws encourage it. Why not take full advantage of those laws?

More Money Isn’t Always the Answer…

Making money, and acquiring more money is a good idea, but don’t let a good idea trap you into a life of good intentions that have negative results!

Of course, the thought process begins with “if I just had a little more income I could solve my financial problems.” Studies show that this thinking prevails, regardless of the amount of income a person may make. Those that make $50,000 a year and those that make $150,000 each have the same lament … “if I just had 10 percent more!”  I teach my clients that they can build wealth on ANY income so long as they have a proper system for managing their money. That doesn’t discount the fact that sometimes having a bit more money can be very helpful, so long as you know how to control that which you already make! If you do not know how to manage what you already earn, making more money will not solve your problems, and in some cases can make things worse.

With that said, sometimes earning additional income is necessary to get in financial cStartupontrol and can help you ultimately earn a passive income. To make more money, many people start a home-based business. We have found with our coaching clients that many of these businesses are based on a hobby or enrolling in a network marking program or some other perceived opportunity. A side business can be a good way to save valuable tax dollars and help bring in additional income that can contribute to financial control. But starting and running a business takes planning, money and time, three things that many new business start-ups never think about.

Seventy-five percent of all new businesses fail within the first two years.  Why do they fail?  The biggest reason is the lack of consistent time and effort put into running a small business.  Most people I know who are running a small business have not reckoned the amount of time they can consistently put into the business. If you want to start a business, particularly while maintaining your W-2 job, more power to Don'tWaityou! But be sure to figure the amount of time you have available on a consistent basis to run the business before you ever start out.  If it’s only five hours a week, that’s fine but be sure to then calendar that time and perform persistently within that time frame. If you do so you will have success in your new business. If you treat it instead like a hobby or an afterthought, thinking “I’ll work on it next week” or, “when I get some time,” or “after I get home from vacation,” or “on my day off,” it is sure to fail.

There are many good, often great business ideas.  Success comes, however, not from the simple brilliance of the idea but from a realistic assessment of the time and energy needed to make the idea successful. Money of course, is a big part of business, and obvious to most.  But time allocation and time management, if not well considered, will be the downfall of something that could generate more income and help you save valuable tax dollars.  Time is the Achilles heel of business failure. Don’t fall prey to it.