Basic things to know if incorporating your business

There are a few options when deciding to start a new company. Deciding on the right entity type to incorporate your business as is an important step and can have long term tax and liability consequences. If you are new to incorporation entities here are a few basic terms to know.

LLC is a simple entity very common with small businesses. An LLC can be owned by a single member or by multiple members. For tax purposes an LLC is a transparent entity. In other words the LLC does not change the way you are paying taxes. The LLC income is funneled and added to its members personal income. The reason to establish an LLC is liability. LLC does provide liability protection to its members but it is not as strong as the protection corporations provide and it depends on the type of business, number of members and the way the LLC is managed.

S-Corp is a simple version of a full blown C-Corp company. S-Corps are not separate entities for tax purposes. In other words the S-Corp income is also funneled and added to the owners personal income. This allows saving employment tax on that income but there is one caveat. You can not transfer all of the S-Corp income as personal income. You must first pay a reasonable wage to the S-Corp offices and workers and only the amounts on top of that reasonable income can be directly transferred as personal income. Those wages will be subject to employment tax, medicare, social security and so on. As such if the projected income from the business is low S-Corp does not provide a tax benefit.

C-Corp is a separate taxable entity. Any income is first taxed at the corporation level and only then can be disbursed to the shareholders and added to their personal income fr further taxation. This can be used to your advantage though in what is know tax splitting. For example if the C-Corp is paying a wage to the owners than that wage is a deductible expense and the C-Corp is not taxed for it. Slitting income means that some income is taxed personally and some is left in the company and paid by the company. In this method more dollars can benefit lower tax bracket. There is a limit though to how much money can be split this way as the IRS set a limit to the wage an owner can take from a C-Corp and still enjoy the full deductible expense. The biggest tax disadvantage of a C-Corp is that if you accumulate money in it and wants to distribute it as dividends that money will be taxed twice first at the C-Corp level and then at the personal level as dividend income.

Before choosing the right entity for your business sit down with your attorney and accountant and think it through. You will need to project things like how many owners will the business have, what is your relationships with them, what is the projected income in the next few years, what is the liability exposure of that type of business and so on.

By : blane.house1380
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Can you afford the loan you are applying for?

The latest credit crunch and mortgage crisis is the best proof for how wrong the assumption that if a lender approves a loan it means that the borrower can really afford the loan and pay it back in full including all interest and other payments. For many reasons bank and lenders approve borrowers that are not really loan worthy for the loan they are applying for. The reason vary from greed to simply making mistakes or using wrong judgments or tools. As much as lenders try they can not know the borrower as well as the borrower knows himself. Some loans are approved because of lack of such intimate knowledge and because further diligent by the lender is too expensive making taking the risk of lending the money more economical than actually applying more diligence.

Our first suggestion is to sit down and try to estimate if you can afford a loan that you are applying for before receiving the reply from the lenders or better before applying at all. There are two main reasons for that. First if your diligence proves that you can not afford the loan then applying for it is simply a waste of time not to mention the implications to your credit report as any application will involve credit report checks which having to many of can decrease your credit history score.

The second reason is more psychological. If you get approved by a lender and then sit down to check if you can afford the loan you might end up not being honest to yourself of cut corners since the approval might be a good enough justification for you to go ahead with the loan. This is not intentional but just the wait we tend to behave. To prevent that possibility it is best that you first make your decision as to the loan affordability before a third party lender pushes you to the wrong conclusion.

So how can you tell if a loan is affordable by you or not? To make a complete financial accurate assessment would take a long time. It is best to focus on some simple rules and considerations. For example estimate the monthly payment on the loan and compare it to the residual income that is available now. It is not enough for the payment to be less than the current residual income. You should try to write down a list of bad things that can happen and see if in those cases you have a way out from the loan or enough slack to continue making payments until the bad things are remedies.

For example you should have enough savings to pay for at least 6 months of payments in case you lost your job with the assumption that in 6 months you should be able to find a new job. You should make sure that after making payments you will still have some residual income to continue saving and for unexpected expenses. Another consideration is the total amount of the loan and the collateral that you take against it. Never risk your life savings or 401K or other pension tools to borrow money. Borrowing to buy a home or a car should use the home or the car as collateral. Taking a loan to buy luxury or leisure products should never be done against savings or other money that is for use in the future.

By : blane.house1380
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Think about retirement while you are young

Retirement is a big deal for all of us although most people only remember to deal and plan for it when they are getting too close to their retirement age. Planning your retirement when young is not just smart it is crucial to successful retirement.

Retirement for most of us is something that will happen long in the future. At the age of 60 or 65 we will stop going to work and start living our free life. The problem with stop going to work is however that that monthly paycheck that we use for everything from food to paying for our car and home will also stop. This makes retirement a challenge. How do you pay for everything that you do during your retirement?

Most people ignore the retirement financial question until it can be too late. The simple answer to how you pay for your retirement is by saving money all your life and then using that money when you retire. It is common sense that the earlier you start saving the more money you can save until you hit retirement. For many that saving is in the form of a retirement 401K plan but there are many other options for how to save your money.

Saving money is not enough. If you would just put your money in a market money account and let it sit there until retirement you would probably have it lose its value quite a bit over those many years. So saving money must be combined with investing the money. Investment is not risk free though. In general it is common for younger people to invest more aggressively in the stock market as in the long run the stock market has always been the best avenue for financial growth. The older people get though the closer they are to their retirement and the less aggressive they should be.

The goals of retirement investment should change from growth to maintaining your money value. In early days when retirement is far away being more aggressive with your investments trying to optimize growth and gains is a smart thing to do. As you getting closer and closer to retirement moving a larger and larger portion of your savings toward safer financial instruments that do not provide high gains but can keep the money value with relatively low or no risk at all is the way to go.

When you eventually reach that retirement phase of life you should have completely all of your savings put in risk free value keeping financial instruments. During retirement you should not invest for growth or risk your money. Remember as opposed to when you were young if you lose money during your retirement years you have no real way to make it again and replenish that broken saving account.

Saving for retirement also allow for some tax benefits as the government would like to encourage such savings. For example 401K retirement plans as well as some other IRA retirement account plans allow for deferred taxes letting you save and invest your pre tax money for maximum benefits.

By : blane.house1380
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Credit cards not the best tool for getting credit

Credit cards are convenient and easy to use tools for making payments. However although the name credit card suggests that their main purpose is to provide credit reality is that they are one of the worst tools to use for credit.

Credit cards have that elusive Credit word in their names. Many consumers confuse the name for meaning a tool for providing credit. Although credit cards can provide significant amount of credit and debt to consumers they are not the best or the cheapest way to get such credit. The Credit portion of the credit card can be construed in two ways. One is as a way to get short term less than a month credit. You use the card to make payments and then at the end of the month you pay off the card basically utilizing a less than a month credit line. The other one is as a way to get long term credit. You use the card to make payments and at the end of the month you make a partial pay off payment thus rolling some debt into the next month and so on which in effect translates to a longer than a month debt or credit.

There is a merit to using credit cards but there is no merit for using credit card as a long term credit or debt tool. Credit card debt is almost always expensive. Even if your credit card company promises zero percent for a short time the truth is that most likely some fine prints rule will make you exempt from that zero percent promotion. Credit cards usually carry a high interest rate than any other debt tool like a loan from your bank or equity line on your home. Credit cards are also random credit tools many consumers spend on their card more than they can pay and end up finding themselves in debt they did not really plan for.

Credit cards have many good qualities too. They are convenient payment tools no need to carry lots of cash and handle change all the time. They are also a great liability control tool. If you buy a product that is faulty and the store refuses to take it back or to handle your claim you can dispute the charge on the card and the credit card will give you the money back. They are also great tools for making safe online purchases which is a more and more common way for consumers to buy stuff these days.

Credit cards should be used carefully and diligently. Make sure that you track how much money you put on the card during the month and always have a budget for how much you can spend. This will ensure that you do not end up over charging the card and then being forced to use the card credit tool because you have no money to pay the card off. Also always check your month end statement for wrong charges or for fraud. And lastly remember to track your card rewards and other perks. Some cards for example allow you to get frequent miles for every dollar you spend while others provide different types of gifts and incentives.

By : blane.house1380
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