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Tax Preparer Guide to Identity Theft

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Guest Post – Zero Investment Business Ideas For Your Entrepreneurial Pursuits

Zero Investment Business Ideas For Your Entrepreneurial Pursuits

The number of self-employed people is steadily increasing.

It was found that 55% of adults in the United States had started their own businesses at some time in their lives. This number alone demonstrates that starting a business is a common and feasible aspiration for more than half of the American population.

Starting a business might be challenging initially, but it can be very rewarding if done correctly. A successful business can provide financial freedom, career progress, personal fulfilment, and even a legacy.

However, not everyone has the luxury of always having the necessary funds to get their business off the ground. Some people pursue the loan route to do so; however, there are numerous cases of people failing, losing money, and accruing debt.

When things get out of hand, people must seek professional assistance with their budget and bill payments or even go for debt relief programs.

This is where businesses with zero or no investment come in handy.

This article will cover things you need to know about starting a business with little or no investment.

What does “zero or no investment” entail when starting a business?

A zero-investment business requires no capital to get started.

But it’s crucial to remember that no business in the world has zero investment. Yes, it is financially feasible, but you will still need to invest time and work to create your business.

It is an appealing choice for entrepreneurs who don’t have much cash on hand or who had it in the past, but accrued debt owing to poor budgeting and bill payments and wish to start over.

What are some zero-investment small business ideas?

The digital age allows people to access many zero-cost small business ideas. 

Here’s a list of 5 of them:

1. YouTube channel

YouTube is used by about 2.56 billion people worldwide, creating a significant possibility for people to succeed on this platform. It is possible to make substantial money nowadays by creating quality content on YouTube.

Because having a YouTube Channel is free, you need a smartphone or camera and an internet connection to start making content. YouTube may be used to make money in a few ways, such as advertising revenue, channel memberships, etc.

2. Freelance writing

If you like writing and know a lot about a subject, you don’t need to look further. The freelance writing industry is constantly expanding, and you can join in. You can deliver your services to your clients online, and your only investment will be an internet connection and a computer.

3. Social media management

If you enjoy developing interesting content and are familiar with social media, becoming a social media manager may be for you. Again, it is a no-cost business opportunity because all you need is the internet and a computer.

4. Teaching

Online education is very popular nowadays. People use online platforms to learn a variety of things. If you are an expert in a certain field, you can make money by offering your knowledge online or in person.

5. Selling handcrafted items

The demand for handmade goods has always been strong and shows no signs of subsiding. Money will not be a huge issue if you enjoy crafting and want to make it your career. Because your products are ‘handmade,’ your sole financial investment would be the materials and tools used to manufacture them.

How can you be successful with small businesses that require zero capital?

Small businesses are not dissimilar to large ones in terms of success. To achieve success, it takes –

Finding a niche

Finding a precise area of concentration is one of the keys to success with a zero-investment business. You don’t want to be all over the place when you’re just starting out because it’s difficult to focus on more than one type of business. So, it is advisable to spend some time determining what your area of interest is that you would most like to convert into your business.

Seeking out partnerships

Building contacts with other businesses in your field can be an excellent method to expand your business. Never pass up possibilities to collaborate with other businesses.

Being persistent

Starting a business with little to no investment can be intimidating, and it can increase the worry of not making a profit. The psychology at work here is that because you are not investing money, you will not profit from it, no matter how hard you work – which is not true. Numerous people who are into this kind of business are doing great.

It is critical to remain focused and persistent regardless of the circumstances. Failures will occur along the route, but being discouraged will add to your difficulties.

Conclusion

Thanks to the multiple possibilities for small businesses that require little to no investment, entrepreneurs can see a new light. People no longer have to rely just on money to fulfill their entrepreneurial aspirations.

If you want to start your own business but are worried about finances, consider the countless zero-investment small business ideas accessible. You, like many others, will undoubtedly come upon an idea that you may turn into a business.

About The Author:  

Lyle Solomon has extensive legal experience, in-depth knowledge, and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998 and currently works for the Oak View Law Group in California as a principal attorney.

Why can’t I get a straight answer on how to operate my business?

Lately, I’ve been doing a lot of small business consulting. With the changes due to the pandemic, many people are trying their hand at self-employment.

How do I start a business?

The classes or on-line guides on starting your own business can sometimes be driven by a business that just wants to sell services, without fully understanding your needs.  There are also many free or non-profit websites (like government sponsored or SBA) that all give different advice.  It can be a little intimidating, confusing and overwhelming at times.

Why don’t I get the same advice?

The reason for this is that there are many factors and considerations that determine the best strategy for you.  I will review some of those considerations and circumstances that might determine how best to proceed.

Consideration #1 Do you have a built-in client base?

• If you are building your business from the ground up, you are fighting some odds:
  • “According to data from the U.S. Bureau of Labor Statistics, about 20 percent of small businesses fail within their first year. By the end of their fifth year, roughly 50 percent of small businesses fail. After 10 years, the survival rate drops to approximately 35 percent.”
  • It takes two to three years for a business to be profitable on average. When a company starts to make profit depends on how high its startup costs are.
• If you are starting franchise, you are fighting different odds:
  • Start up costs, royalty fees, inventory, employees, accounting requirements add up quickly, so the beginning capital investment can range from thousands to millions depending on which franchise you chose.
  • You have to follow rules from the larger brand about how you run your business
• If you are purchasing an existing business, you are fighting different odds:
  • When you buy an existing business, you typically get complete control over its direction. However, with no set vision, infrastructure, or external guidance, your business could struggle as you figure out the best way to run things.
  • You don’t always know exactly what you’re purchasing unless you do some serious due diligence and review of the financial reporting history

Consideration #2 How is your business going to be funded?

• If you are self-funding, you typically need another source of funding for your household living expenses for at least the first 2-3 years.  Around that time, you will be able to start paying yourself back.  Then around the 3-5 year average, your business will be able to sustain itself and provide a source of income to you.  This is the reason most small business don’t last:  they run out of money before the business is profitable enough to sustain them.
• If you have loans for your initial investment, your business growth will be off to a great start, but your growth will be slower because the profit your business makes will be needed to pay back the loans instead of re-investing in the growth of your business.
• If you have shareholder or capital investors, you need to be very clear, with written and signed agreements up front regarding all the possibilities and how that impacts not only you as the owner, but all of your investors/shareholders because they have ownership in the business.
  • When is the funding going to occur (up front, on a fixed schedule, upon reaching certain benchmarks)?
  • How is the funding going to occur (sweat equity, cash infusion, purchase of stock shares, contribution of property)?
  • What happens at each benchmark if the goals of the investors/shareholders are not met?
  • Then also, when & how are the investors/shareholders going to be compensated or reimbursed for their funds?
  • What happens if the funds are not available for compensation or repayment?

Consideration #3 How will you get paid?  These are broad generalities and there are exceptions to each of these, of course.  It is best to have a working relationship with your financial advisor and tax professional to help guide you through these steps based on your specific situation.

• Sole proprietors and single-member LLCs can just take draws out of their business account to pay themselves personally because they are taxed on the profits from their business whether they leave the money in the business account or take it out.  ***However, you will be subject to self-employment taxes in addition to your income taxes, so be sure to set aside some of that draw money to cover these taxes.
• Multi member entities (Partnerships, S Corporations & C Corporations) will be paid according to the operating/shareholder agreements.  Partnerships need to also be aware that their share of the net income might also be subject to self-employment taxes in addition to income taxes, so be sure to set aside some of that draw money to cover these taxes.

Consideration #4 How will my income from my business get taxed?

• Sole proprietors, single-member LLCs, partnerships and S Corporations are “flow through entities”  this means, they do not pay any income tax at the federal level.  This income is reported, taxed and paid at the personal level.
• C Corporations are considered their own entity by the IRS.  So, they will pay all their own income tax and the income that they distribute in dividends are then also taxed by the recipients at the personal level.  This is a case of double taxation since the C Corporation paid tax on that net income and the shareholders will pay income tax on the dividends.

Consideration #5 How will this affect my personal income taxes?

• Sole proprietors and single-member LLCs report their income on a Schedule C to calculate the net income of the business.  That net income gets added to all your other sources of income when computing the income tax.  Additionally, the net income is subject to self-employment taxes, that get added to the income tax before the total taxes are calculated.
• Partnerships file a tax return with the IRS reporting the business income, expenses, net income and the percentage allotted to each partner. Each partner is then issued a K-1 which is the form that is their allotted percentages.  This income then gets added to all your other sources of income when computing the income tax.  Additionally, the net income is subject to self-employment taxes, that get added to the income tax before the total taxes are calculated.
• S Corporations file a tax return with the IRS reporting the business income, expenses, net income and the percentage allotted to each partner. Each partner is then issued a K-1 which is the form that is their allotted percentages.  This income then gets added to all your other sources of income when computing the income tax.  (note, that no self-employment taxes are added because the S Corporation shareholder is required to have payroll compensation that is already subject to payroll taxes)

All these different considerations (plus others not specifically listed) impact what type of entity structure you should use, how much capital investment will be required, how much industry knowledge is necessary, how much overhead you will carry and your requirements (if any) around how you can pay yourself…just to name a few.

Also, it is important to remember that entity types can change as your business cycles through different changes and reaches certain benchmarks.  It is important to keep in mind these different entity structures because as your business fluctuates and your personal tax situation changes, it might benefit you to make an entity adjustment.

For example:

I generally advise a small business owner that is just starting out, with low overhead and no investor partners, to operate as a sole proprietorship because they are easy to operate and report and even easier to close (just stop generating income).  The income tax reporting is fairly straight forward, with full advantage of any business losses (which are very typical the first couple of years in operation.)

I generally advise a small business owner that is just starting out, with no clients/customers, low overhead and no investor partners, to operate as a single-member LLC. This gives them some legal protection (not covered in this topic), but only has a small fee (depending on your state of organization) to get setup and close. The income tax reporting is fairly straight forward, with full advantage of any business losses (which are very typical the first couple of years in operation.)

Once the business is consistently (2-3 years) making between $30k-$50k net income, I recommend converting to an S Corporation.  Then they can take advantage of the tax savings offered by this entity structure and the tax savings cover the additional cost to prepare and process payroll, and the extra tax return at year-end.  However, you need to be careful to consider how this will affect your personal income taxes in combination with all your other sources of income/tax strategies.

Once the business is consistently (2-3 years) pushing the $200k net income, or the combined S Corp + other income sources are pushing the $200k adjusted gross income, I recommend converting to a C Corporation.  This separates the business income from the personal.  Then the personal income can stay below the $200k adjusted gross income (or whatever the income level is that fits your tax strategy) to reduce that big tax bracket jump and the corporation pays its own tax on the income it’s generating.  It’s also worth noting that in addition to the double taxation of dividends, if the corporation has a business loss, that loss cannot “flow through” to help reduce the personal income tax as a reduction, whereas all the other entity types can.

So, although I can only give generic advise via this blog, I hope you have been able to glean some helpful information.  If you’d like to schedule a free consult to answer any questions specific to your situation, I’d love to chat with you!

Best wishes & success in whatever way you measure it!

IRS Phone (and other) scams

It’s the height of tax season and that means my posts are fewer.  I’m enjoying working with all my new clients and all my regulars too!  That said, this is also the height of “tax scam” season.  These scammers will do their best to scare you into giving them information that you should not give them.  Recently even I was contact by a scammer who left several messages on my home phone.  According to both my professional observations and the IRS, these scams have recently increased in both frequency and sophistication.

“The reason of this call is to inform you that IRS is filing lawsuit against you.  To get more information about this case file, please call immediately on our department number ….. Thank you.”

Bad grammar aside, I feel it’s important for me to say that the IRS will never contact you this way.  The IRS will not contact you via phone and simply let you know you’re being sued.  There are policies and procedures that the IRS must follow in order to bring any action against you and you will be notified.  If you’re the subject of one of these bogus scams, the IRS recommends that you gather the name and IRS badge number of the person calling you, hang up, and call them back at 1-800-366-4484 to verify.

Of course, phone scams aren’t the only attempted scams and some are quite convincing.  I encourage you to read through the following links to familiarize yourself with both the methods these scammers employ and the actions you can take to responsibly verify and report them to the IRS.

• Overview
• Various types of scams
• Reporting scams (scroll to the bottom of the page)

Of course if you are the subject of IRS levies or litigation I am fully qualified and experienced in helping people in your situation.  I encourage you to contact me so we can get to work on solving the problem and getting you back on track!

Why shouldn’t I just do it myself?

Why shouldn’t I just do it myself? Here are the top three reasons the IRS most highly recommend Enrolled Agents and I am listed in their registry of paid preparers.
My top three would be:
1) Maximum tax savings – we spend all year talking with other professional preparers and monitoring the tax laws for our clients
2) Piece of mind – your eyeballs & my eyeballs reviewing the returns, mean a lower chance of error
3) Time savings – because I do so many, I can probably do about 4-5 returns in the amount of time it takes one unskilled preparer to do their own

The ABC’s of the 1040! Individual Income Tax Planning: Part 1 Learning how to read your 1040

Tax season is coming. In a scant two months it will be here and for some, it will arrive bringing stress and confusion. As a tax preparer my goal is to minimize those feelings of confusion and anxiety in my clients by providing them clear and accurate information, fighting for their taxpayer rights, and lawfully minimizing their tax exposure. This post is to provide what I hope is accurate and helpful information to everyone, whether you’re a client or not.

As a taxpayer, the law states that you are personally responsible for everything on your tax return. This blog series will help you feel more confident as you read through the ABC’s of the 1040! This first part will provide you a brief overview of the 1040 itself. Subsequent posts will describe each of the “Schedules” associated with the 1040 which, depending on your situation, may or may not be necessary for your tax return

The 1040

The 1040 Individual Income Tax Return is two pages long. Yet the information contained tells the government quite a bit about your household size, income, and tax-related spending.

After your identifying information, the filing status is determined. Since the purpose of this blog series is to familiarize you with the 1040 and its associated schedules, I can’t go over the complex ramifications that this selection might have. I will say that this simple checkbox plays one of the greatest factors in the amount of tax that will be assessed. Each one of these boxes has a distinct definition that covers multiple scenarios and possibilities. Check with a tax advisor if you have any questions!

Exemptions

The number of exemptions determines the amount of income you deduct based on your household size.  This will be used on page 2.

Income

The first section’s purpose is to report all your income, by income source.  The source of income determines the type of income it is (i.e. ordinary income vs. passive income).  As you can see, most of these lines derive their value from the related schedules, or what I’m referring to in this series, as the “ABC’s”.  I will be covering each schedule in more depth in future blog posts so be sure to subscribe to my feed or my newsletter.

Adjusted Gross Income

There are a few legislative adjustments to income that directly reduce your taxable income before arriving at the Adjusted Gross Income (AGI).  This number is very important and another essential value that determines quite a few of the tax calculations and assessments.  Tax time is the only time of year, you want this number to be low! 🙂

Tax and Credits

Starting with your AGI on page two, take deductions and exemptions to calculate your taxable income. Your taxable income is the number that determines your tax bracket (percent of income).  You then arrive at your basic income tax.  However, this is not your total tax yet!  As you can see on lines 44 – 47 below, there are some taxes with different tax brackets, so those get added.

Although you’ve arrived at line 47, this is not your total tax yet either!  Let’s talk credits. Credits reduce taxes (which is the amount you are assessed by the IRS) whereas adjustments, deductions and exemptions only reduce the taxable income.  Almost always, credits are better than deductions. But, not all credits are created equal :).  These first set of credits are non-refundable credits, meaning they can only reduce your tax to zero, and in most cases, will not carry forward to future tax years.

Other Taxes

There are some types of taxes that cannot be reduced through tax credits, so there is a special section just for those calculations and additions to finally arrive at your Total Tax.

Payments and Credits

While Total Tax is the amount you owe the IRS for any given tax year, payments you have already made throughout the year and tax credits that you are able to claim can further reduce that number! This next section is called Payments, but the majority of entries relate to refundable tax credits.  That means these credits can be fully taken, even if it results in a tax refund.

Signature and Responsibility

One last item that I think it is critical for a taxpayer to know and understand is that having a tax preparer does not alleviate you from the responsibility of what is entered on the tax return. See the perjury statement just above your signature!

So when I point this out to my clients, I am often asked, “then why should I pay someone to prepare my returns if I am still fully responsible?” This is a very logical and fiscally responsible question, especially if your tax preparation fees are high.  Yes, high, is a subjective term.  I did this on purpose because more than just the price of the return needs to be considered when determining the value of your tax preparer.  In fact, the IRS has prepared YouTube videos and Podcasts exclusively on this topic, so I am not going to cover them all again here.

What I will stress is that the responsibility of a tax preparer is to interview you and review your tax documents thoroughly to understand your taxable situation as described in the above information.  Then, he or she must accurately reflect that information, and be able to explain that information to you, as their client, until you can confidently sign as the taxpayer!

Professional tax preparers are registered with the IRS, the State Board of Accountancy or State Bar Association.  They undergo rigorous testing and comply with continuing education requirements to stay abreast of current tax law and strategies.  If they are reported or caught preparing returns unlawfully or even unethically, there are separate preparer penalties depending on the extent of the infraction.  If you prepare yourself, or use an unregistered tax preparer, all the penalties and interest for errors are your responsibility regardless of whether the error was an honest mistake or fraud.

For a student or first job taxpayer, this risk is probably negligible or minimal, so the fee should also be (see https://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free).  For taxpayers with more complicated returns, the risk is significantly higher, and the amount of time and professional knowledge and skill to prepare the return also increases.

This post should give you a good overview of the 1040 form itself.  In future posts I will be covering each of the 1040 schedules in more depth.  However, if this post didn’t answer all of your questions or if you have questions unrelated to the 1040 please feel free to contact me using the information in the footer of this page!  You may also schedule a free consultation to discuss and ask questions specific to your tax situation.  I look forward to hearing from you.

Trudy Hetzel is a licensed Enrolled Agent. She has owned and operated her business in Surprise, Arizona for 15 years and has over 20 years of accounting, bookkeeping and tax preparation experience.  She’s a married mom with two awesome kids and three awesome dogs.  Trudy loves helping people with their tax, accounting, and bookkeeping needs.  Give her a call today!