What Issues Should I Consider As a Business Owner or 1099 Worker?

Running your own business (including 1099 work) introduces different elements that aren’t always easy to factor into your personal financial plan.

With our guidance, clients can better navigate these different elements and find more ways to tie them in with their personal financial goals.

This checklist covers some key issues a business owner should consider when making financial planning decisions, such as:

• The effect running a business may have on one’s personal financial goals.

• The general tax implications of running a business.

• How certain tax planning factors may be coordinated (e.g., retirement plan contributions, certain deductions, hiring a spouse, specific business entities, etc.) to better suit one’s financial situation.

• Other areas (e.g., risk tolerance, insurance needs, financing issues, etc.) that may be affected by operating a business.

What Issues Should I Consider As a Business Owner or 1099 Worker? (completed)

[Music] Hi everyone, Todd Pouliot with Gateway Financial, again feel free to visit us at mygatewaymoney.com. And again, there's some great stuff in this checklist here, and if you'd like a copy of this checklist feel free to reach out to us and let us know that you'd like a copy of this checklist and we can get that to you via email. This is a great checklist I love it personally obviously because I am a small business owner and I really think that this is good for anyone who's a small business owner or a 1099 worker. Because if you are 1099, theoretically you are a business owner of your own little small individual business. So, running your own business, including 1099 work, introduces different elements that aren’t always easy to factor into your personal financial plans. With our guidance, clients will be able to navigate these different elements and find more ways to tie them in with their personal financial goals. So, this checklist covers several key areas; it's going to be the effect of running a business that may have one's personal financial goal and the general tax implications of running a business thirdly how tax planning factors may be coordinated. We are going to talk about retirement plan contributions, certain deductions, hiring a spouse, and specific business entities. Again it's better to suit one's financial situation and then some other areas that we're going to talk about things like risk tolerance, insurance needs, and financing issues that may be affected by operating a business. So, as I always do, we're going to come over here and share our screen for you. And here we are, we have some long-term issues that we need to talk about. Do you need to review areas or your business may be affecting your personal financial goals? This is almost always yes. We definitely need to look at the budget regularly and consider increasing your emergency in light of any additional business expenses. And do you need to review your investment goals or risk tolerance in light of being a business owner? Consider the extent to which investment in your business introduces risk or lack of diversification to your overall investment and financial planning goals. I love dealing with small business owners. “Well, I'm making a lot of money in my business.” Just remember don't put all your eggs into one basket, things can change, those black swans that come out of nowhere, legislation changes, things that we might see - an interruption in technology. We want to make sure that your overall investment and financial planning goals are still achieved with regard to diversification. So, that's a big area we focus a lot on. And do you need to reassess your life and disability insurance coverage in light of being a business owner? Look at some business-related risks, so, disruption of business activity, loss of potentially higher future income, key person succession issues, buy-sell issues, and estate liquidity, and make sure that life and disability insurance may not fail to adequately cover those issues. That is a big area - a big topic to discuss and really something that needs to get taken care of pretty early in the planning stages. Do you need to redo your gifting and or estate plan in light of being a business owner? So, consider how that makes it change your existing plans for transferring assets to the next generation or to charity as needed. Do you need to begin planning for the sale, disposition, or succession of your business? Now again, this is a little later on, but this is a long-term issue. Talk about that process early, think about that process early. Identifying successors, valuation, marketability of the of - the gifting of certain assets, and that may disrupt the continuation of your business. Tax issues, boy I love talking about taxes! Do you need to review whether you are properly allocating, and taking general business expense deductions? Consider the allocation between business and personal expenses. Business use vs. personal use. Again this is why we have a CPA that we can go get up out of my desk and go talk to, and that's why we need to be mindful, of what is considered ordinary and necessary for your line of business when taking those deductions. Do you need a review of whether your quarterly estimated tax payments are appropriate? Boy, this is tax planning not just the preparation for the last year, but planning for this year and the years beyond. Consider the income and expenses and how that's going to impact your overall tax liability. Make sure you are making those quarterly estimated tax payments. I dread doing that every quarter, but gosh darn it, I have to. Do you need to review whether to accelerate depreciation or use traditional depreciation? Again, I don't want to give tax advice on this YouTube here, but we definitely want to make sure how we're doing those depreciations, what method, and how that affects your personal tax rates. So, a larger deduction upfront versus spreading it out and figuring out which one might be best for you and looking at your optimal tax margins. So, look at those things - potential for recapture, flexibility, dollar limits, carry-forward limits, and sunset phase-out. Boy, there are so many acronyms we can give you, but that is something we need to look at it as far as business ownership. Has your business or 1099 were claimed a loss on your tax return in the last 5 years? Consider whether your business may be subject to hobby loss rules. Not profitable for 3 in the last five years and address this because the IRS may audit you and make sure you're ready for those types of discussions with your proper CPA or accountant there. And do you need to review additional ways to increase the deductible contributions to your retirement plan? Most people that run small businesses or have 1099 forget about the end game. The end game is not - I don't like to use a retirement - I like to use financial freedom at some point in the future, but understanding that you look at the plans available to small business owners and 1099 workers. Consider hiring your spouse for increasing both your employee contributions and employer contributions to your retirement plan. Be mindful that your spouse must work as a bona fide employee of your company. Determine whether it makes sense to expand your retirement plans, such as adding profit sharing or cash balance. Love to have a full discussion on a whole other video on that for cash balance plans. Again that allows for a lot of deferral for taxes. Big tax planning can be done here. And be mindful of the interplay between qualified business income, commonly referred to as QBI, taxable income, and deductible contributions to retirement plans. That may reduce QBI and taxable income for the purposes of calculating that QBI deduction. Again that's what's great about having a financial planner like myself, having an attorney, and having a CPA all working on your behalf. If you're operating as a C-Corp, do you need to review ways to minimize the taxation of your income? If so, consider whether you can appropriately leverage a flat corporate tax rate of 21%, compared to your personal tax rate. Again this is something we really want to spend some quality time talking about rather than just a quick little snippet. And again, the S corporation minimizes taxation of your income. Consider whether it's appropriate to shift more income from a W-2 wage to a K-1 distribution. Again, no FICA or self-employment taxes may be eligible for the QBI deduction. Be mindful of reasonable compensation rules. So again, I have another video talking about entities, C-Corp and S-corp, also with partnerships. Distributive share, are we appropriately taking distributive share? Consider whether you’re correctly tracking your basis. Very big substantial economic effect and it makes sure that the IRS scrutinization isn't too overwhelming for you. Again make sure you have a really good tax person that you work with, we love working with ours. Do you need to review any state-specific tax issues? So make sure you understand those state issues. And other issues, are you considering hiring additional employees? I know throughout the years I have. Consider whether hiring an employee will help your business goals, which are ultimately to increase productivity and profitability, and your personal goals - work-life balance. So consider the specific factors of hiring a family member, whether or not they're hired as a W-2 or 1099 that made better compliment your financial planning goals. This is a great conversation I know I personally had those conversations about my own staff. Are you eligible to or able to coordinate access to certain employer benefits - medical insurance through your spouse's employment? That's a great way if you have a side hustle or hobby and you have kind of grown into a business to take advantage of your spouse's benefits plan and again, the health insurance marketplace is also available to those small business owners. Concerned about the ability to qualify for financing? This is something most people forget about. Mortgages and loans as a business owner are really important. How do we get that financing options or larger down payment, debt to income ratio, pledging assets? A lot of people look at HELOCs - home equity line of credit - another way that I like to talk to our clients about is SBLOC - Securities Back Line of Credit - which is much more simple and easier to obtain. But you have to have certain assets placed in certain ways to make that available to you. Do you need to review your business entity choice that's best suited for your financial situation? So, I'm kind of backing up here over on this side, but we definitely need to make sure that we have those issues dealt with, and if at some point in the future you've outgrown where you're at, do we need to change the business entity choice that you've made. So, tax implications, the need for raising capital, the liability issue with changes, and also control of your business. So look at your current business structure, and determine whether or not it makes sense to transfer to a different business structure at some point that will help complement your personal financial goals. And review any planning opportunities that are specific to your business industry. Consider where there are any specific tax credit deductions that made uniquely pertain to your business, as well as any insurance that helps mitigate industry-specific risks that may pertain to your situation. With such a broad breadth of business, we can be talking to, but I can't narrow down all those things into one little chart. So, I wanted to thank you again for coming back and reviewing this important checklist. I love that the backbone of our economy is built on these small businesses and throughout the pandemic, we saw several of them go out of business. So, I appreciate you coming here to learn more about being a business owner and/or a 1099 person and learning more about what’s going on in the world and the issues you may have. So again, thumbs up, we appreciate doing those thumbs up. Also, don't forget to subscribe, it really helps us with that YouTube algorithm, and will keep bringing you wonderful videos like this and look forward to seeing you at mygatewaymoney.com. Thanks, and have a great day.