Starting a business right from day one is important to reduce financial and regulatory risks. This is not taught or spoken about as much as should be. Many want to be the next successful entrepreneur in real estate, retail, or software for example, but can get in trouble if they don’t take a couple steps.
If a business starts bringing in sales, and gets sued, the 3rd party might come after your personal assets if a LLC was not setup. The business needs to be a separate legal entity from the owner of the business. If the business owner is mixing personal funds with business funds, the owner’s personal funds might be at risk.
Simpson & Simpson can assist in setting up your business with the right legal and tax entities, help you file all the legal forms with the proper authorities, and help create a start-up plan.
As an example, a LLC with a S Corporation designation for tax purposes, is believed by many professionals to be the best of both worlds for small to medium size companies. It combines the flexibility of a LLC with the tax benefits of a S Corporation.
Simpson & Simpson has saved companies thousands of dollars by advising on filing the S Corporation designation and staying compliant with the stringent S Corporation guidelines. Here is a chart showing the basics of how the LLC with S Corp designation saves on taxes compared to the straight LLC.
Self Employed Retirement Accounts
One amazing benefit of being a business owner versus being an employee is being able to reduce current year taxes by contributing up to $53k (age 49 and under) to a self-employed retirement account. An employee at a corporation can only contribute up to $18k (age 49 and under) per year to a 401k to reduce taxes. This is a remarkable benefit for business owners to defer taxes and save for retirement.
We can help direct you to trusted resources which can help you determine the right retirement plan and/or mix of investments.
Unfortunately, good people become sick or hurt due to disease, cancer, injury, surgeries etc. When the owner of a business owner goes down, significant income is lost, and the family might suffer.
Disability Insurance typically pays 60% of business owners income so that he/she can continue to pay their bills and not put their family into financial ruin. This is an important benefit that should not be overlooked and be included in every business owner’s financial plan.
Insurance companies will not pay the business owner 80-100% of their income when becoming disabled to give the owner an incentive to get back to work.
The advantage of being an employee at a corporation is that the corporation provides this benefit at low cost to the employee and the company pays most of the cost. The disadvantage of a being a business owner is that many don’t realize how important this income protection is to have in place and it is a more expensive for a small outfit if not setup as a group policy.
We can help your business determine and purchase the right income protection policy suitable for your financial situation and find the best rates.
The proper amount of life insurance is especially important for business owners. The deceased does not want to leave his family with debts, college cost burden, and a halted income for the next couple decades. Here is a quick example:
Business owner is married and spouse stays at home, brings home $150k after taxes each year, has $250k left on the mortgage, $20k of business debt, and 3 kids ages 8, 10, and 12. The business owner passes away.
Here is one way of looking at the suggested insurance need for the situation above:
- Income replacement for business owner until all kids reach age of 18 = 10 years X $150k = $1,500,000
- Pay off debts = $270k
- Approximate college costs for 3 kids = $300k
Total Policy Amount = $2,700,000
Life insurance is one of the most valuable assets owned. Most life insurance policies are not actively management as an asset. As part of setting financial goals, it is critical to ensure insurance coverage and policy provisions keep in pace with changes to the individual’s life.
Common triggers that we help clients with a life insurance portfolio analysis include:
- Changes in family and/or business situation
- Changes in health – improved or deteriorated
- Shift in financial status
- Getting Married
- Birth of children
- Underperforming or incorrectly priced policies
Feel free to contact us if you would like a life insurance analysis of existing policies or to obtain a new policy. We can assist in finding competitive pricing over 80+ carriers.