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What to Know About Starting Your Own Business
Being self-employed has plenty of advantages, but it's also a long, hard slog with a ton of paperwork involved. That's not to put you off, as it's incredibly rewarding when it pays off. It's more to prepare you for what's ahead, and it's good to know the ins and outs of starting a business before diving into the deep end.
That’s why we’ve put this guide together detailing everything you need to know about running a company, from starting out to answering questions like “is life insurance tax deductible for self-employed?”.
Starting a business
When people think of someone running a business, images of Elon Musk, Mark Zuckerberg, and Jeff Bezos come to mind. And while it would be impressive to reach those heights, business owners come in many different forms and aren't all super CEOs.
From those with aspirations of running a large company to freelancers doing their thing, self-employed people are a varied bunch. There is one thing they all share in common, though: they all need to start somewhere.
How do you market an idea, where do you find clients, what tax do you need to pay, and how do you plan for your financial future? So many questions and so little time if you're starting a business. So let's get moving.
The very first steps
Starting can be daunting when you first become self-employed. But it needn't be something to worry about. After all, you've taken one of the most challenging steps already by deciding to work for yourself. The early stages are more about setting everything up and making things official–crossing the I's and dotting the T's, if you like.
Here’s what you need to consider:
Coming up with an idea
If you’re at the point of starting your business, you probably already know what you’re going to do professionally. Still, this is the perfect stage to review and refine everything, ensuring your idea is watertight and that there’s a market for it. It could be worth doing some extra market research, just to make sure you’ve got every angle covered.
Writing a business plan
Business plans are key to helping you understand more about the business' needs. A plan is also vital for generating investment, be it from investors or banks. Your business plans should answer questions like "what is the purpose of the business," "who are you selling to," and "how will you finance your startup costs?"
Determining business structure
Will you be a freelancer, acting as a sole proprietor, or will you form your business as a limited liability company or partnership? There are several ways you can form a business, and it’s one of the first decisions you’ll need to make when starting out.
Choosing a bank
You will need to choose a business bank to handle your incomings and outgoings. The size of the bank matters, too, with some smaller community banks having more of an understanding of locality. That might play to your advantage if your business is locally based. A smaller bank may also consider more aspects than just your credit score.
Registering with the government and IRS
Before you can officially get going, you will likely need to register your business with the government. Doing this can involve the need to obtain business licenses. Plus, you will need to register with the IRS.
Registering with the government
You might need to register your business with the federal, state, and local governments, filling out several forms in the process. However, you won't need to register if you conduct business in your name using your instead of a company name.
While this might save some initial paperwork, it’s worth remembering that you could potentially miss out on personal liability protection, legal benefits, and tax benefits if you don’t register your business.
Registering your business is as simple as registering the business name with state and local governments for most small businesses. So unless you're starting the next Facebook with unlimited revenue streams, the process should be reasonably straightforward.
Registering with the IRS
As well as registering your business with the government, you will also need to fill out some forms for your federal and state income tax obligations. It’s best to check your state’s website for information relating to state-specific local tax duties.
So you've written the business plan, chosen a bank, and registered the business–now things are really getting exciting. The next step involves thinking about insurance and the different kinds of policies for your company and yourself.
Personal insurance is particularly important, especially as you begin to build your business up and generate income. Personal cover like life insurance can protect you later down the line if you cannot fulfill your working duties while also helping you build wealth alongside your business venture.
Business insurance is an important step in your journey to setting up a company. Running a company is a rollercoaster of emotions, and it's vital that you're prepared for scenarios like property damage (if you have a bricks-and-mortar store), theft, unpaid invoices, and even lawsuits.
There are lots of business insurance options available, but the basic ones include workers’ compensation and unemployment insurance if you have employees.
Others worth considering include general liability (GL) insurance, business owner's policy, professional liability insurance, and life insurance coverage (more on that in a bit).
Personal plans, such as life insurance, can be beneficial if you're self-employed. The reality is that being self-employed comes with decreased job security, and a life insurance policy can act as an important safety net.
Life insurance will cover your family should you pass away. If you opt for permanent life insurance, it can even help you save up for a safe and secure retirement. These policy types allow you to save and invest your premiums. This means you can earn a rate of return of 6-8% on average and take it out tax-free upon retirement. That, and your family still gets the life insurance death benefit.
You’re already weathering plenty of risks in running your own shop, so you may want to take the safe route for your retirement. Check out permanent life insurance quotes today so you can rest assured you’re building up a safe financial future.
Businesses looking to grow can also benefit from permanent life insurance plans. If you’re starting a Corporation, it can be a versatile tool for all-size businesses, as organizations can use life insurance as an employee benefit to attract talent and help employees protect their families. If you have a business partner, it might be important to consider putting a Buy-Sell Agreement in place that protects the business, and each other’s families, in the event of an owner’s death.
Overall, having a permanent life insurance policy as a business owner may be able to provide the flexibility you need with the ability to take out the cash value to help the business in uncertain times (without waiting till 59 ½ like in a 401K), pay overhead expenses, or simply provide supplemental cash flow in retirement.
Is life insurance tax deductible for self-employed?
Another key benefit of permanent life insurance relates to it being tax-free. Therefore, you might ask yourself, "is life insurance tax deductible for self-employed?". Well, yes and no. There are a couple of scenarios where you can deduct taxes on your 1099.
If your business is an LLC or S Corporation and you provide life insurance for employees, you can deduct the premium payment made on their behalf. Unfortunately, if you're a sole proprietor, you won't be able to claim life insurance as a tax-deductible expense.
However, it's not all bad news, as permanent life insurance is tax-free, which means there is no tax to pay on the death benefit, and if you decide to take out the cash value for retirement, or anything else, you won’t be taxed on your principal or any growth you’ve accumulated in the policy.
In conclusion: Starting your business the right way
It might seem like there’s a lot to take in when you start a business, but most actions related to setting up can be performed with relative ease. And while you’re in the process of moving your company forward, having permanent life insurance can act as a safety net and give you that added peace of mind. So all you need to do is focus on building your empire. Jeff Bezos, it’s time to look over your shoulder.