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Why You Should Start A Company

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StrategyDriven Entrepreneurship Article |Start a company|Why You Should Start A CompanyMany people would love to start a company. But have you ever really asked yourself why you’re doing it? Like, what’s the point?

Well, in this post, we provide some answers. It turns out that starting a business is about more than just having more money in the bank. It’s about so much more.

You Have More Job Security

Climbing the corporate ladder is an ordeal. You never quite know whether you’re about to go up the next rung. And when you don’t progress, you can feel like you’re being deliberately targeted or let down by the people around you. It’s not fun.

But when you have your own business, those sorts of politics don’t matter one bit. Instead, you’re the boss and you decide the direction that the company goes. It’s your job to create a system that generates money. And because you’re not worried about promotions, you have so much more energy to devote to providing customers with value.

You Can Be More Creative

Another advantage of setting up a company is the fact that you can be more creative. Corporate environments often force people to follow tried-and-tested paths. But as an independent businessperson, you can branch out and take risks that regular management teams would never allow.

You Get Tax Breaks

Why do some many ultra-wealthy people own businesses? It’s pretty simple really: they love the tax breaks.

Think about it. Corporate taxes are much lower than income taxes. So if you run your salary through a company, you wind up keeping more of your profits than if you do it through regular PAYE.

You Get More Control Over Your Life

Here’s the biggest benefit of owning your own business: you get to call the shots. There’s no manager sending you emails at the weekend, demanding that you have work done by Monday morning. Instead, your time is your own, and you can use it as you please. If you’re not happy with the amount of time you’re spending at work, you can always hire somebody to take over the necessary tasks for you. Nobody is telling you that you should do anything.

You Can Get Real Financial Independence

You can achieve financial independence working nine to five in a regular job. But it takes years and years of struggle.

When you own a business, though, you can massively shorten the time it takes to build wealth. What would take some people ten years might only take you two. If you’re really quick off the mark, you could make serious returns that outpace your regular job in less than a year.

You’re Following A Passion

Following your passions in life is critical. You’re only here for a limited amount of time, so you need to find things to do that make you feel fulfilled. And, if you’re like most people, that’s not working in insurance for 30 years. Starting a business is a blank slate which you can take anywhere you like. It’s something that makes you feel engaged every day of your life.

How Is an LLC Taxed?

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StrategyDriven Managing Your Finances Article |LLC|How Is an LLC Taxed?Easily one of the most daunting parts of being an entrepreneur, tax season can be complicated if you’ve never been exposed to doing business taxes before.

In this article, we’ll explore how LLC taxation works, so as an LLC owner, you neither overpay nor underpay the government.

Before We Discuss LLC Taxation

Before we get into the nitty-gritty details of LLC taxation, it’s important to first understand what an LLC is.
A Limited Liability Company is one of the simplest ways for a new employee to structure their business and have it recognized as a commercial entity in the government’s eyes. The requirements to form an LLC are low, making it the path of least resistance for budding entrepreneurship to achieve legal status.

Forming LLC (through an attorney or online service) enables owners to protect themselves with limitations of the risk their personal assets face, should something untoward happen with the company. In addition, starting fees are relatively small (less than $200 in most states).

The principal benefit of LLCs, however, lies in the discussion of LLC taxes. LLC’s are single taxation entities, meaning that unlike corporations, the income can only be taxed at one level (business or personal income).

How is an LLC Taxed?

The answer to this question technically depends on how the company is structured. If the company is structured as a collection of multiple partners, then the LLC’s income is taxed only at the personal income level.

That means that each of the shareholders in the LLC report income from the LLC as their personal income, and they file individual tax returns. No additional forms have to be completed for the LLC itself.

However, if the LLC is structured as a C corp or S corp, which it can elect to do after it’s created, then it will be required to submit additional documentation. The IRS Form 8832 is used for the LLC to elect to submit taxes as either a C corp or an S corp. The documentation submitted thereafter will determine what additional forms the LLC uses to be taxed (Form 2553 for an S corp and Form 1120 for a C corp).

Without corporation status, the LLC’s income is classified as “pass-through” which means that it just goes into each owner’s personal income return.

Do LLC’s Pay State Income Tax?

Some states require that LLC’s pay income tax at the state level. This is fairly common, and will often take the form of a franchise fee.

The franchise fee is an annual fee submitted whenever the LLC submits its annual report. The annual report contains information regarding total revenues, total operational expenditures, philanthropic expenditures, etc..

Most states will use the federal tax liability as a starting point for their own tax determination. Look up your individual state’s LLC tax law to figure out how much you’ll be liable for this April.

Don’t Mess Up Your Taxes!

Few things can kill a growing company’s momentum than falling on the wrong side of the IRS. Take the right steps to ensure that you’re completing your LLC taxation correctly — look up state laws, fill out the right forms, and consider calling a professional if you need help.

Once you’ve gotten through this tax season, make sure to come back and subscribe for more small business advice!

StrategyDriven Editorial Perspective – No Free Lunch

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There exists a pervasive and ongoing belief among many that government has the power to eliminate hardship and create prosperity for everyone. Nothing, of course, could be farther from the truth.

“You don’t make the poor richer by making the rich poorer.”

Winston Churchill
Prime Minister of the United Kingdom (1940-45, 51-55)
and Nobel Laureate (literature)

The following video is that of a lecture made by Nobel Laureate and Economist Milton Friedman. In his discussion, Dr. Friedman illustrates why there is no free lunch, why no combination of government programs can simultaneously create wealth and prosperity for all individuals. Thus, when government spends money, it is always at someone’s expense. He goes on the dispel the myth that corporations pay taxes of any sort and how continuing such policies further injures the economy and employees.

Dr. Friedman’s assertions are not political but are instead based on sound economic theory and real-world experiences. These principles equally apply to organizations to the extent that compensation, benefits, privilege, and authority are proffered in a manner inconsistent with the value contribution of the individual.

StrategyDriven Recommended Practices

Highly accountable organizations benefit from the premise that there is no free lunch. Executives, managers, supervisors, and individual contributors are held accountable for their actions and contributes both positively and negatively. StrategyDriven leaders should therefore take the actions necessary to create and promote accountability throughout their organization. At a high level, these actions include:

  1. Clearly defining the organization’s mission in terms of quantifiable goals and values
  2. Broadly communicate the organization’s mission and values
  3. Cascading these mission goals into a performance metric system that establishes the results to be achieved at each level of the organization and ultimately by each employee
  4. Codify the individual level performance metrics and organizational values within position descriptions, observation programs, and individual performance goals
  5. Award organizational positions based on individual knowledge, skills, experience, contributions, and adherence to the organization’s values
  6. Establish a compensation and benefits program that equitably distributes rewards based on an individual’s value contribution and adherence to the organization’s values
  7. Provide continuous, ongoing feedback and coaching to both reinforce the achievement of the organization’s goals in a manner consistent with its values and to further develop personnel and improve performance

“Organizational accountability exists when all members of the workforce individually and collectively act to consequentially promote the timely accomplishment of the organization’s mission.”

StrategyDriven Contributors

Additional Information

StrategyDriven believes the practice of ‘no free lunch’ reflects an organizational commitment to praise-worthy values. Leaders seeking to infuse their organization with such beliefs are supported by the tools presented in our principle, best practice, and warning flag articles within the following topics: