Surf the web or browse popular magazines and newspapers, and you’ll find lots of insights about the opportunities and risks of being your own boss. But given the sky-high rate of small business failure, there can never be too much written on the topic.

I’m no Steve Jobs, but I believe I’ve got something to say on the matter. I last trudged off to work for a full-time employer on the Monday after Thanksgiving, 1989. I was fired from my job that day, my third firing or layoff in less than four years. In at least two of those axings, the boss intimated I was about as valuable to the company as a dish of paper clips.

That did it. I’d had enough of working for people I didn’t respect but who had control over how much I earned, when I woke, when I lunched, what I wore, when I went on vacation and more. So I struck out on my own. I didn’t really believe I’d succeed. In fact, I was almost certain I would fail. But the idea of being my own boss for at least a while was far less abhorrent than shambling through a skein of interviews for jobs I was sure to detest.

Well, it’s almost 22 years later, and I can say with near 100% surety I will never again take a nine-to-five job. Since launching my own gig, I’ve earned much more money, enjoyed infinitely more prestige and savored far more autonomy than I ever did working for someone else. I truly believe hanging my own shingle saved me from a life of misery. It may have kept me from a steady diet of anti-depressants or even a fortnight in a rubber room.

As I built my business, I had opportunities galore to meet and size up other people starting their own businesses. That brings me to the message of this opus. There are some folks who should never, ever be in business for themselves. If you see yourself in one of the following types, question the wisdom of going it alone. If you see yourself in two, think long and hard before scheduling a launch party. And if you see yourself in three or more, save the cost of a start-up, and don’t let the word “entrepreneur” ever pass your lips.

Ms. Style-Over-Substance. Some individuals have always wanted to open their own business, but for reasons of form rather than function. When I started, they had the coolest holographic business cards and best stationery. Today, they’d own the most up-to-the-minute phone and the greatest looking Facebook page. Regrettably, their attention to customer needs is far less keen, leading to an early exit from the ranks of the self-employed.

Mr. Nine-to-Five. Spend a long time as an employee, and you can get used to eight-hour workdays. But you better get unaccustomed to them quickly if you want to make a go of your own business. Some weeks, you’ll have nothing to do but prospect. Others, you’ll be working night and day. If you must knock off each afternoon at five, you’d better keep your day job. There’s no such thing as succeeding at business without really trying.

Ms. They-Don’t-Respect-Me! Don’t open a business with the intent of gaining respect or winning arguments with a client. The client didn’t hire you to duke it out in debates, or to commission a statue in your likeness, but rather to solve some pressing problem. When you do solve that problem, you may or may not win respect, but you will win repeat business.

I have a friend who started her own concern, and often checks in to say she had to argue with a client about a fee or her work’s quality. I tell her to recall retail pioneer Marshall Field’s adage that the lady is always right. When you’ve built a thriving enterprise and don’t have to go work for someone else, you’ve earned the most important respect: Your own.

Mr. Big Spender. I knew a guy who started a company helping businesses learn if land they were considering buying had buried underground tanks, necessitating costly remediation. For several years, he earned a half million dollars annually, and went on a spree. He bought a huge house, an unnecessarily costly SUV, and all the big boy toys.

Last I heard, he was living in a budget motel and fending off enraged creditors. When the market for his services dried up, his business went belly up. And Mr. Big Spender had shot through a pile of cash many people require decades to assemble.

Mr. or Ms. Under-the-Weather. Do you find yourself spending considerable time in a sickbed, doctor’s office or the ER? You may not be best bet for future Entrepreneur of the Year. Most people I know who have made it as their own boss are also among the least sickly of my acquaintance. I don’t think it’s a coincidence. Unless you’re a pharmaceutical sales rep, you won’t build a healthy biz hanging around physicians’ waiting rooms.

To reiterate, if the above sound like you, it may be best to shelter your savings and shelve your ideas of authoring a rags-to-riches business success story. But if not, a glimpse of the best boss you’ll ever have just may be as close as the nearest mirror.

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This is a guest post from Lisa White.

They say there is never a better time to start a business than in a down economy. But if you’re like many others who’ve tried to get a loan or investor capital, you know that money for startups does not come easy.

Whether you are looking to help finance a new or existing business, there may be another option.

A number of small and even medium-sized businesses utilize credit cards to help finance their expenses. Although experts considered this practice ill-advised in the past, today many find it necessary to cover expenses like overhead, travel and entertainment.

If you have previously managed to avoid utilizing lines of credit for these purposes but are now considering it, there are a number of things to keep in mind.

Things to consider

For starters, if you are currently employed and considering starting a new business using business credit cards to finance expenses, then you should apply for the cards now. It will be far easier to obtain credit while employed in a regular job than if you don’t have a steady income.

Credit card financing works especially well for businesses with obvious busy and slow sales periods or short-term expenses. The ebb and flow of revenue will allow you to more easily pay off debt and keep spending in check.

Unexpected expenses are a given in business. Broken equipment, unexpected travel, and last minute client dinners can wreak havoc on your cash flow. Credit cards can be very helpful in the case of such “emergencies.”

Credit cards can also be very helpful if you are looking to keep track of expenses and segregate spending. By using a card, you’ll have an auto-generated, detailed listing of all transactions. In some cases you can even access a categorized expense report so it will be easy to keep a handle on entertainment, travel, office supplies, and other business-related expenses.

Be aware that by charging credit cards to their limit and paying the minimum amount required each month, you’re likely to get yourself in a hole that’s not easy to get out of. Not only can this limit your available credit, but your interest obligation will continue to grow. Moreover, late payments can also cause your APR to skyrocket. Be aware of the 0% balance transfer credit cards that are available in the event you need to change cards.

Obviously, it’s best not to utilize credit cards that accrue interest from the date of purchase due to high finance charges. Rather, seek cards where interest begins to accrue from the date the card’s payment is due. Even better, look for credit cards that provide interest-free financing, at least for awhile.

Not only should you try and stay away from high interest rates, but you also need to keep an eye out for rate and term changes.

Do your research. Read the credit card terms carefully, making sure you understand interest rates, payment requirements, fees and perks.

Keep in mind that credit card cash advances typically carry higher interest rates and should not be utilized to finance your business.

Not only is it important to monitor your own credit card spending, but you will also need to keep close track of usage by any employees who are authorized to use the account.

When to avoid credit cards

My advice is to avoid credit cards as the primary method of financing your business if there are other alternatives available, such as a line of credit from your financial institution, or even p2p lending from an outfit like Lending Club.

Those who are not financially responsible and have difficulty keeping spending in check should probably look extra hard for another method to finance their business expenses.

If you’ve determined that credit card financing for your business is the way to go, take into account that, no matter how many credit cards you plan to utilize, there will be a total cap of credit that will limit the amount you can access.

This is not free money. You will need to come up with the funds to pay all of the bills and, in some cases, will be paying more due to interest rates and fees.

Be prudent by creating a payment plan for business credit card bills from the get go. This will not only provide you with insight into how much money you can afford to spend, but also make you think more about where this money will come from.

Whether it’s personal or business-related, debt is debt, and it needs to be repaid eventually.

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If you are like most people I know, you go through financial ups and downs. When this happens, do you talk about it with the kids or pretend nothing is wrong? If you decide to share it with your children, how? And how much do you share? I faced this dilemma a few years ago.

I’ve been pretty diligent about my finances for years. I save, invest, and (most important) track my spending. But, like a lot of people, I took a huge hit in 2008. My income plummeted at the perfect time – just when my middle daughter was about to start college. We had saved for college since the time she was born, but the investments were crushed at the same time that my income withered. The perfect storm. We weren’t in danger of losing our home or our good credit, but we were facing some difficult decisions.

We could either borrow money to pay for an expensive school my daughter got accepted into and live as if nothing had changed, or we could adjust our lives to the new reality.

My children were money savvy. They knew what was going on in the financial world by just seeing my face. And they knew my business was hit. They just didn’t know how bad things were and what it all meant.

I understood the anxiety my kids were feeling. I personally lived through very tough financial times growing up. My parents didn’t plan well at all and we paid the price for it big time. I wasn’t about to repeat their mistakes.

As a family, we talked it through and decided (I convinced them…) that borrowing money was the worst alternative, and that going to a lower-priced college was the way to go. In order to get their support, I had to be very frank about our financial situation without being needlessly gloomy. Here’s the way I approached it.

1. Honesty

As I said, everyone knew what was going on and they could see I was very concerned in a way I hadn’t been before. It never occurred to me to try to hide what was going on. But I knew that it was important for the family to have the facts.

I shared the numbers. What they were before the hit and what they were likely to be in the foreseeable future. My wife and I didn’t hold back anything from our oldest two children, but we didn’t share the numbers with our youngest, who was nine at the time. She couldn’t possibly understand what the numbers meant so we just skipped this step with her.

2. Meaning

Numbers without context have no value. We explained what was going to stay the same and what would change. I told them we were not moving and that we were secure. That’s all they cared about. I did explain that we’d be cutting back on lots of discretionary items and they seemed more than OK with that.

Without explaining what was going to change and what was going to stay the same, they would probably have assumed the worst. In retrospect, by talking about this in detail, we actually relieved their anxiety.

3. Options for school

We spoke openly about all the options for college – including borrowing. While I was dead set against taking on debt for college, it was important to discuss it. I wanted my kids to understand the pros and cons of borrowing. I wanted them to see that we could survive just fine by tightening our belts and didn’t have to solve all our problems by borrowing. Sure we’d give up some experiences – but we’d gain others.

4. Unintended payoffs

I believe that involving our children in this difficult financial process was by far the best financial lesson my wife and I could possibly provide. They learned how much it costs to live and they don’t take their lifestyle for granted. I don’t think they live in financial fear but they are financially sober. They don’t think money grows on trees anymore. They understand that they are expected to support themselves when they get out of college so they study in areas that will help them achieve that objective.

My middle daughter went to a state college and thanks us for sending her there. She is super-involved on campus and is doing great. She actually has more opportunities to shine at the state school than she probably would have had at the expensive school that she first wanted to attend.

I believe the kids got another really important message. They saw that being self-employed provides (at least in our case) more security than having a job. Many of their friends families were faced with much greater problems. If I was an employee, I could have lost my job and thereby lost everything. Unfortunately, that happened to many people.

By having my own shop, I didn’t have to worry about being fired. My kids saw the value of being self-employed (which I am a huge fan of) and the absolute necessity of running the business well.

Why is this an important issue to you?

It’s been almost three years since the financial melt-down. Many people are struggling now more than ever. Even if you are fortunate enough to have escaped that catastrophe, it’s really important to involve your entire family in your finances.

Remember, nobody taught you about money. You had to learn the hard way. Do you really want your kids to go through the same wringer that you did? If you do want to educate your children about money, what better way than to involve them in your daily financial life?

Let them see how you make decisions. Let them participate in the process. Have them experience making financial trade-offs – saying YES to one thing and having to say NO to something else. Teach them that decisions have immediate and long-term consequences. You can talk about these things and that’s fine. But there is no better way to have them integrate that education than by inviting them into your process.

What’s your experience? Do you think that sharing your finances with your children is too much of a burden? Or do you think it’s a good idea? How much do you share, and how?

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As a small business owner, I’ve debated whether a dedicated credit card for my company is the way to go.

Today, money is a lot harder to come by. Loans are more difficult to acquire and take longer to finalize. When used responsibly, company credit cards can provide small business owners with a method of payment during periods of slow cash flow.

I am aware that a “corporate” card would help me better track my company expenses, keep tabs on my spending, and even help me grow my business. I know that, with a card, I have the opportunity for rewards in the form of cash back, airline miles and other perks. I also realize that the availability of generous credit limits makes these cards both desirable and practical.

But my practical side reminds me that, especially for entrepreneurs small business credit card debt needs to be kept in check – no matter how attractive that low introductory rate might be.

Interestingly, more than two-thirds of small businesses use a credit card for expenses, though (according to the Tower Group) only 40% manage their finances exclusively with a business credit card. If you’re like me, and you regularly debate whether a dedicated business credit card is right for you, then you might want to consider these advantages:

• Expenditure tracking: It’s difficult enough remembering your expenses at the end of the quarter, but
  tracking all business spending for the year can be cumbersome and overwhelming. By making all of these purchases on a company card, you will have a detailed listing of every transaction, including the date, amount spent, and place of purchase.
• Future capital: By responsibly using a business credit card, you’re able to build credit for your company, which can be beneficial for future financing purposes, including securing loans and/or credit lines.
• Perks: Signing up for a card that offers cash back, airline miles, or other
  valuable rewards can help reduce overall expenses. However, it’s important to keep in mind that these can easily be offset by card fees and late payment penalties.

If you’ve decided that a business credit card is the way to go, there are several rules of thumb to consider.

First, check with your bank to see what types of credit cards it offers, if the approval process can be expedited, and if you can utilize the card or your bank for a loan or line of credit, if needed.

Although it is typically quite easy to receive multiple credit cards for your business and employees, if you are a sole proprietor or the only one making purchases, it is best to have one card so spending does not get out of hand.

You should also keep in mind that it’s important to keep your personal and business spending separate – both for financial reasons and for limiting your personal liability – so you should only use the card for company expenditures. At the same time, you should also avoid taking cash advances, and you should strive to pay off your balance in full and on time each month.

Because all credit cards offer different combinations of terms, fees, rewards, and credit limits, you’ll need to do your homework to find the best fit for you and your business.

Here are a few great offers to get started on your search:

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I have always thought there were better side jobs than MLM. I don’t know why exactly…but I just don’t like it. Two weeks ago, after a friend of my wife weaseled her way over to our house to discuss a “ground floor, once-in-a-lifetime opportunity,” I refused to come downstairs. I just stayed in my man-cave and watched Law and Order re-runs until she left.

But was I unfair? Is MLM really a business worth considering? My answer is “no” and I’ll tell you why:

The foundation

MLM marketing is typically a Ponzi scheme with a pretty product used to disguise the trickery. In reality, it’s little more than a scam.

The attraction is the money they dangle in front of you ñ not the quality of the product. They tempt you with all the things you’ll be able to do once that money starts pouring in. Travel the world. Buy that second home. Dream big. But any business that is founded on the profits and not the competitive edge of the product is a mirage.

MLM products are typically sold only through the MLM distribution channels, and this makes no sense. If the product was good enough to compete in the market, it would be sold through more conventional stores.
If it’s not sold through stores, then it means the product isn’t really what’s being sold – rather, it’s the process that’s being marketed. And that process is, as I’ve said, just a Ponzi scheme.

The foundation of MLM is to get other people to buy into the system. They buy in with the dream of having 10 people buy in beneath them and having that process continue ad infinitum. That is how they plan to build wealth – not on the strength of the product itself. And that is the core problem.

The dream

If you pick up any marketing literature for MLM systems, you’ll see some beautiful people jumping on private jets or ski boats. They’re usually dripping money and they have a second home in Maui – all made possible by the MLM program. Of course these stories are as synthetic as the people themselves.

And if anyone does profit from the MLM program it’s from the sale of distributorships, not from the product itself. I read recently that the founder of FUND AMERICA – a huge MLM system in the 90s – was arrested. 90% of the profits he made was from the distribution channels and not from product sales.

The products

And even if you believe in the product, you should not join an MLM program. If you do, you’re still going to promoting ideas that you probably don’t believe in. Remember, the way to make money here is to get all your friends to buy-in to the program. So even if you believe in the basic product, you’re not selling that. You’re selling the process.

And before you become a true-believer in that product, keep in mind that you may not really know what you are getting involved with. One reason grease ball business people create MLM systems is because they know they aren’t held up to the same scrutiny as producers that advertise main-stream.

An MLM manufacturer can say anything he or she wants about a product without regard to the wishes of the Federal Trade Commission. MLM creators frequently make up endorsements, fabricate studies, and misrepresent their products seven ways to Sunday – all with very little oversight. Indeed, the FTC states that “many of these [products] are unproven, fraudulently marketed and useless or even dangerous.”

So many of the products that are sold through MLM are things that just couldn’t be sold in any other way. But by relying on your friends, the manufacturer knows you sell with an implied personal recommendation. And that is worth it’s weight in gold – to the MLM creators.

Look before you leap

Even though the MLM program you might be considering offers a money back guarantee, you’ll never get it. The reason for this is that you’ll never ask for it. The MLM creators are masters at manipulation. They know that if you ask for a refund, you’re admitting defeat and you don’t want to do that. Instead, the “starter kit” that you bought sits in the corner of the garage and your money sits in the bank of the shyster who created the system.

I dislike MLM schemes because they are by nature a lie. They take advantage of people with the most to lose. People who are borrowing money to pay their bills shouldn’t be forking over that money to “invest” in these programs, but they are the prime targets. They are often out of work and uninformed. They end up more in debt than before they started.

People like Bernie Madoff, who fraudulently take advantage of people with Ponzi schemes go to jail. But people who do the same thing by draping a product on top of the scheme cash big checks. Don’t be part of it.
Before you get involved with a multi level marketing program ask yourself a few questions:

• a. Do I know what I’m selling?
• b. Do I want to get my friends involved in something they may not understand?
• c. Do I want to sell something that can only be sold word of mouth rather than based on the product’s strengths?
• Do I want to make money based on selling a system rather than a product that delivers benefits?

Have your experiences with MLM been different? Do you know anyone who got involved with such a program that really offered value? Please share your thoughts in the comments section.

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This is a guest post from Ed Avis.

Kids have earned money for generations by selling lemonade, walking neighbors’ dogs, and mowing lawns. Those ideas still work, but maybe your kids want something a little more clever or out-of-the-box. Here are six unconventional ways kids can make money.

Grow plants

Every spring homeowners around the country dig holes in their yards and insert plants… That they bought at the local garden and home center. There’s no reason they couldn’t have given that money to your kids for plants they grew in the basement over the winter.

There is some investment involved – seeds, potting soil, and plastic trays. And there is definitely work involved. But you don’t need to be a horticulturalist and own a greenhouse to grow plants from seed, and the experience of growing these plants will probably be more valuable to your kids than the money they earn from selling them to neighbors.

Cookies, cookies, cookies

Does your kid like to bake? There’s money in that skill. Here are two ideas: First, the next time you or anyone in your neighborhood has a garage sale, have your little baker set a table with cookies and lemonade. Garage sales attract people with money to spend, and they’ll be pleasantly surprised to see cookies available at the garage sale.

The second idea is more ambitious. All moms need cookies for lunches and class parties, and many don’t have time to bake. Your child can do that work for them, on demand. The neighborhood kids will benefit from homemade cookies, and your kid will benefit from a well-fed piggy bank.

Sports lessons

This one isn’t for every child, but if your teen son or daughter did well in sports at ages 6-8, he or she could capitalize on that skill. Many parents of T-ball players and little soccer stars are seeking an edge for their developing athletes. Professional coaches give lessons starting at $40 for half an hour; your kid could teach a young T-baller basically the same skills for half that.

Not all good players make good coaches, but if your child likes working with younger kids, sports lessons may be an enjoyable, satisfying way to earn a few dollars.

Tutoring

Does your son do well in math or English? Is your daughter a chess whiz or a first-chair clarinetist? If so, then they can take advantage of those skills by tutoring younger kids. Most people think of tutors as adults, but your child may have a better perspective on teaching young kids than an adult – who has probably been out of school for many years – does. And younger kids look up to older kids more than they look up to adults.

Starting a tutoring business can be as easy as talking to teachers in the appropriate lower classes. They may be willing to pass on the names of prospective tutors to children they know could use the help.

School survival handbook

Starting a new school can be terrifying. Your kid can capitalize on that by writing a “guide to survival” for his or her particular school, and selling it to incoming students (well, their parents). This guide, which can be just a 15 or 20 page pamphlet printed on copy paper and stapled into a booklet, should contain inside tips on how to succeed at your kid’s school.

Welcome advice can include tips for pleasing certain teachers, maps for getting from the lockers to class, the best things to choose for lunch, the coolest places to meet friends at recess, and countless other things that only a veteran of the school would know. Of course, the pamphlet could also include good general advice, such as how to make friends and how to schedule homework, but the key to success of this booklet is its insider perspective.

Turning history into money

Most homeowners are somewhat curious about the people who previously lived in their houses. Your child can turn that curiosity into profit by preparing simple historical packets about neighbors’ houses. Here is what can be included in this packet and where it can be found:

• Previous owners. This information can be found, sometimes online, in your county recorder’s office, register of deeds, or the equivalent in your community
• Newspaper articles. Articles that mention the property or previous owners can be of great interest. Libraries usually have microfilmed newspapers that can be searched, and many newspapers are now online.
• Historical items. Items related to the history of the neighborhood itself (e.g.,from newspaper archives or interviews with older neighbors) can be of great interest.

The bottom line

Any time you’ve ever thought “I could do that!” or better yet “My kid could do that!” there’s bound to be an opportunity lurking nearby. What do your kids, or your neighbor’s kids, do to earn extra money?

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If you are self-employed, I have great news. The most effective ways for you to improve your business are often free and very easy to implement.

Here are 6 ideas you can put to work starting today:

1. Interest expense

You may run a business that needs credit in order to operate but that doesn’t mean you should become complacent. If you do, it’ll cost you. A friend of mine makes small business loans to people who didn’t plan ahead or consider other alternatives. He’s rich, and they are basically working for him. Here’s how it works.

A pizza parlor owner needs $5000 for a new oven. She figures she can earn $500 a month on that new oven, so every day she waits costs her a lot of money. She calls my friend and he charges her 20% for a loan that she must repay within 12 months. She figures she can earn 10% a month on the money, so 20% a year is nothing – even though she could have take steps to get cheaper money. She takes the loan and my friend eats her lunch – a large mushroom pizza.

The pizza parlor owner is smart for taking out a loan, but dumb for taking this one – unless it was the only one she could get. The best way to avoid getting jammed up on interest expense is to take a few precautionary steps.

First, have loan sources lined up before you need to borrow money. Look into having a credit line on your business or home well beforehand. If you borrowed money for your business over the last 2 years, chances are you’ll borrow money again. Find the least cost alternatives and set them up now.

Next, if you are currently in hock, do everything you can to get out of debt. This will help improve your credit score and make it easier and cheaper to borrow money next time you need it. Take action now.

2. Bookkeeping

I’ll admit that, for many years, I didn’t keep good books for my business. That was a huge mistake and a big opportunity I didn’t take advantage of. I could have benefited by looking back at those numbers now. Fortunately, I did start getting serious about bookkeeping about 15 years ago, and it’s been a huge help.

Never run your business through your personal bank accounts. It doesn’t matter if the bank is going to charge you extra for a new account – pay the expense. It’s worth it. It will be easier to track everything, and you must do that if you want to know if you’re profitable or not. Plus, it’s important to keep separate finances if you want to limit your personal liability.

Personally, I recommend using Quickbooks, but it’s certainly not the only small business accounting software out there. Make sure you keep your books up to date and download all the data. Also, I recommend doing the bookkeeping yourself. There is no better way to keep you fingers on the pulse of your business than by doing the books yourself and seeing where the money is going.

Bookkeeping is the main ingredient for small business success. Without it, don’t be surprised if you find yourself with business trouble and IRS tax debt. Ouch.

3. Retirement

Even if you are very young, start thinking about the future and set up a small business retirement plan now. The years slip away and you can take advantage of that by growing your money tax-deferred even if you start out with small amounts.

Besides tax deferral, there is another big reason why retirement accounts for self employed people is super important… Over the last 27 years as a professional financial advisor, I’ve found that people tend to accumulate their financial assets in retirement accounts. Can you guess why?

It’s because money in retirement accounts is difficult and expensive to spend. Faced with the prospect of paying 10% penalties on top of income taxes on early retirement plan withdrawals, people tend to do without. This isn’t the case with non-retirement money. That cash sitting in your checking account is screaming out to you “spend me! spend me!”

That being the case, the more you put in your retirement accounts, the less you’ll spend. Put as much as you can into retirement accounts starting now.

4. Sales

Besides bookkeeping, you need sales in order to grow your business. In order to make sales, you need to have sales and marketing skills. While I can’t go into these two subjects in depth right here, I can remind you to do one very important thing.

Focus.

Write down everything you do during the day for the next 3 days. How much of that activity was in a sales conversation? How much of it was spent marketing? Most people don’t love these activities so they don’t do them. We easily find other ways to fill our days doing things that may be important but are still less important than these two critical success factors.

If, after you complete this exercise of writing down your activities you realize that you are spending time away from marketing and sales, hire people to free up your time. I have one virtual assistant and one office staff person. On top of that, I have vendors and contractors. Each of these people do things I could do. It’s just that I can pay them less than what I could earn with the time they free up for me.

Are you doing too many things yourself and not hiring enough people to help you? You’ll know once you write down everything you do over the next three days.

5. Spending time and money

You have to spend money and time to grow your business. But are you investing these assets wisely? For example, social media marketing is really popular… But is it effective for you?

It took me two years of working on my blog before I started seeing a return on my investment. I didn’t really start it as a way to market my business but, had I done so, it would have been ridiculous. If my main goal is to grow my business, there are much more effective ways to do so than by starting a blog. Of course, now that I have an established blog, it’s a different story. But I think you understand my point.

Look at how you market your business. Is it the most effective use of your time and money? It’s fine if the answer is no. Just realize that if the answer is no, you should be engaged in those activities because you want other payoffs – not for your business.

6. Free priceless feedback

You can get the most valuable feedback for free from your clients and mentors. Getting objective reviews is critical in order for you to grow your business and to stop leaking money. Create a ten question document and give it to your best customers. Then, go over the document together. Ask them what they like and dislike about your company. Ask how you can improve. Find out what additional services they’d like to see you provide.

I have hired business coaches in the past and they have been useful. But in the end, the advice I’ve received seems to boil down to these six items. What other tactic would you recommend to help someone quickly put their small business on the path to success?

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This is a guest post from Brian Tanner, who is a freelance writer for HP.

“There’s no place like home,” said Dorothy in the Wizard of Oz, and for the budding entrepreneur looking to launch a new business, that statement is more applicable than ever. Being that most home based startups have limited resources, setting up a workable, cost-effective home office can be challenging.

Here are six tips for creating a home office that is both functional and affordable.

Begin with the end in mind

Face it. With today’s technologies, pretty much any area in your house could serve as an office at any given time. But to do business effectively, you need to evaluate your needs and then choose an area that will best meet them. Having a well-defined space that is dedicated to the sole purpose of doing business should be your number one priority.

Not only does a designated office space offer tangible benefits when it comes to claiming the home office tax deduction, it helps you to take your business more seriously by having a place to report to and stay focused in. Setting ground rules with family members to avoid interruptions during designated work times is also important, as a quiet background will help you establish a higher level of professionalism with your clients.

Adapt a do-it-yourself mentality

Turning a room into an optimal office can take organization, creativity, and perhaps a few do-it-yourself skills. You can save money by tackling these tasks yourself. If a room needs some upgrading, like a fresh coat of paint or new window treatments to create a brighter environment during the workday, try to do as much of the work as you can before calling in a professional.

If creating an office calls for an actual remodel of an existing room, or other structural modification to the home, try making do with a room divider to postpone a renovation until your business generates enough income to justify the added costs.

Buy used furniture

Being that an office requires certain furnishings not always found in the home, purchasing some necessities, such as a proper desk and chair, may be unavoidable. By resisting the urge to buy new furniture and running not to the local office supply store, but to the neighborhood thrift store, you can save substantially without compromising quality.

Just be sure that the desk and chair you purchase are compatible, and that the chair is sufficiently comfortable for long periods of sitting. Medical supply stores can be a good source of inexpensive, supplemental cushioning.

Economize on equipment

When buying office equipment, an honest evaluation of what equipment you actually need, as opposed to what you want, will help you avoid the urge to splurge. If you anticipate the need to copy, print out, scan, and fax documents, you might consider taking advantage of an all-in-one machines, as opposed to buying several different pieces of equipment to accomplish the same tasks. This not only reduces your costs, but also reduces clutter.

Likewise, do you really need both a desktop and a laptop computer? What about using a more powerful laptop that can be docked to a large display and standard keyboard? While you might pay a bit more for this sort of laptop, having one allows you to take your computer into the field.

Of course, you can save even more by purchasing refurbished equipment from reputable retailers. Just make sure that the equipment in question won’t become obsolete too quickly as your business needs expand.

Buy supplies on sale

Regardless of whether your business is product or service oriented, the fact remains that a functioning home office requires office supplies. Although the practice of buying items as you need them may seem the most practical, you can reap substantial savings by purchasing office consumables either in bulk or on sale. Establishing a small business account with companies such as Office Depot or Staples, which offer modest credit lines to small businesses, can also help in establishing business credit and improving cash flow.

Once you know you needs, a warehouse club, such as Sam’s Club or Costco, can be a good source of bulk supplies. Just be sure you don’t get caught up in the excitement of setting up your new home office and end up rushing out and buy a ton of stuff that you don’t need.

Learn to leverage your time

When starting a new business, the old adage that “time is money” readily applies. You may have a well-appointed, state of the art home office that is the envy of any entrepreneur, but if you fail to “show up” on a regular basis and hold yourself accountable for the effective use of your time, you run the risk of failure.

If you need help to better serve a growing client base, use your internet skills to find and hire a virtual assistant. If a legal issue arises, or some other aspect of your business that is beyond your abilities to resolve, hire the appropriate professional to address that particular issue (e.g., an attorney or tax pro).

Virtual staffing is one of the most efficient and cost-effective ways to maximize home office productivity and business profitability. By outsourcing things that are outside of your specialty, you can spend your time doing what you’re best at.

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Do you have a home office? If so, have you ever considered taking the home office tax deduction? One common concern with taking this deduction is that it might trigger an income tax audit. But is that really the case?

Well… The general consensus seems to be that concerns over audits related to the home office tax deduction are a bit overblown. Moreover, even if you’re audited, you have nothing to worry about as long as you have a legitimate claim to the home office tax deduction.

This is, of course, a relatively complex topic, and it is covered in detail in IRS Publication 587, “Business Use of Your Home.” What follows if a thumbnail sketch of the requirements to get you started.

Defining a home office

According to the IRS, if you use a portion of your home “exclusively and regularly”:

• as your principal place of business, or
• as a place to meet or deal with patients, clients, or customers in the normal course of your business, or
• in connection with your trade or business where the business portion of your home is a separate structure not attached to your home,

then you may be able to take the home office tax deduction. For certain other uses, including rental, storage, or use as a daycare facility, you have to use your property regularly, but not exclusively, in a business capacity.

Establishing exclusive and regular use

Probably the biggest limitation for most people is the “exclusive” use requirement. In general terms, this claim is easiest to support if you use a separate room for your business activities, though you can get away with a portion of a room if you can show that no personal activities take place in the business section.

But even if you have work full time in a home office space, if your kids use it to do their homework in the evenings, or your spouse uses it for working on a hobby over the weekend, then it doesn’t meet the exclusive use requirement.

As for regular use, this is a bit of a grey area. If you work in the office a few hours per day, you’re probably okay. But if you’re trying to deduct a space that you rarely use, and is just incidental to your business, then you should probably steer clear of the deduction.

What about employees?

What if you don’t own a business, but you frequently work at home? Can employees still take the home office tax deduction? Maybe…

If you are an employee that happens to spend time working at home, you have to meet the same standards as a business owner. In addition, your use of the home office space must be for your employer’s convenience, not your own.

If, for example, your employer doesn’t provide you with office space, and you have to use a portion of your home to do your job, then you’re probably in the clear. But if you simply prefer to telecommute a few days a week, then you can’t take the home office deduction.

Claiming the home office deduction

So how do you go about claiming the home office deduction? For starters, you can claim any “direct” expenses in full. This would include things like maintenance or repairs that are limited to the business portion of your home.

As for indirect expenses, such as those associated with maintaining and running your entire home, you can deduct those based on the percentage of your home that is dedicated for business use. For example, if you live in a 2000 square foot home, and you have a 200 square foot home office, then you’re using 10% of the total space as a home office.

Your indirect expenses include utility bills, homeowner’s insurance premiums, HOA fees, security monitoring, etc. Mortgage interest and property taxes are also deductible, but in that case you’re moving the deduction from your personal balance sheet to the business side. If you rent your home, you can deduct a percentage of your rent for the portion of your home dedicated to you business.

If you own your home, you can also claim depreciation, which is basically an allowance for wear and tear. This is a relatively complicated topic, and not easy to cover in a single article like this. As such, I’ll simply direct your attention to Publication 587, which has an entire section dedicated to depreciation.

As noted above, full details surrounding the home office tax deduction can be found in IRS Publication 587, and you use Form 8829 to figure your deduction, which then gets reported on your Schedule C.

Do you claim the home office deduction?

Even though we run our business ventures entirely out of our home, we’ve never taken the home office deduction. The reason for this is that we don’t have a dedicated space for our activities, so we can’t justify the deduction.

What about you? Do you claim the home office deduction? If so, do you have any tips or tricks to share? If not, why not?

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A friend of mine has a very successful side business. In fact, he earns more on his side business than he does from his full-time job. The only problem is that if he were to get hit by a bus, his business (and the income he earns from it) would disappear. That means that the value of his business (currently $500,000) would vanish.

You see, Hans’ business depends entirely on Hans. Even though he has formally created a Professional LLC, his business is vulnerable. He writes music for video games on the side, and if he isn’t jingling, he won’t earn any money. Writing music at this level requires a highly skilled individual. It’s not a skill that’s easy to replace.

Even if you aren’t a music composer, you might be facing a similar problem if you own a small business. Bloggers, financial planners, doctors, accountants, and others all face this issue. It can be boiled down to one simple question: how do you capture the value of your business if you aren’t around to run it?

If you face this dilemma, here are the steps I suggest you take:

1. Buy life insurance

This is a no-brainer, even if you don’t run a small business. But it’s especially important if you do own your own shop. The purpose of the insurance is to replace the income your family would lose if you die prematurely. Make sure you have enough life insurance to replace your side income, as well. By doing so, you’re effectively buying time for your loved ones to deal with their loss.

2. Get friendly

Get out there and make friends with your competition and be on the lookout for a potential buy-out partner. You’re looking for someone who is successful, trustworthy, reliable, and smart. Obviously, the person has to have the skills necessary to run the business, but they also must be extremely concerned about the well-being of their own family.

This latter point is important because, ideally, you’d like someone who wants you to help them as much as you want them help in case of emergency. That puts a different spin on the transaction than if you wind up selling to a complete stranger.

The sooner you do this the better, because it will take time to identify the right partner. Don’t rush in to anything. Meet several times and meet with a number of people. Discuss the issue of continuity and capturing value of your business. Does the issue resonate with this other person? What are her concerns in this matter? Make sure you are both on the same page.

The process of identifying the right candidate could take a year or more so be patient.

3. Let’s make a deal

Once you’ve found the right person, it’s time to seal the deal. Basically, your goal is to arrive at some value of your respective companies. It doesn’t matter what it costs to start a small business like yours.

The value of your business will typically be a multiple of the gross or net income. This way, as the income grows, and as the value of the business grows, your family is protected. You would come to an agreement as to how the business would be paid for and over how many years.

In other words, the buyer might pay your family over five years after your death, or they might pay for the business immediately upon your death. This latter strategy might involve you buying life insurance on each other. I strongly suggest that you seek legal representation when drafting the final agreement.

4. Roll up your sleeves

Just because you’ve found the right person and executed an agreement, don’t think you can rest easy. Now is the time to enmesh yourself in each other’s business. That’s right. The value of your business will be maximized if – and only if – your buyout partner is able to keep the business running.

The only way they’ll be able to do that is if they are well acquainted with the way you run things. This means you’re going to have to pull back the curtains and show your buyout partner the inner workings of your business. That’s why you have to find a person you trust and that’s why this is a long process.

5. Baby’s got back (up)

It’s great to pursue this process with one other person, but realize that you may have second thoughts. Your agreement should allow either party to back out prior to death or being diagnosed with a fatal disease. This is where your extra life insurance comes in. I love cheap term life insurance, and this is a case where it can really come in handy.

In addition, you can train someone else (e.g., your life partner, spouse, or adult child) to keep the business going for some period of time until he or she can sell it. This should never be your number one plan if your spouse or life partner has little or no interest or special skills in your area of business.

The bottom line is that, if you go through this process, you’ll definitely capture more value and put your family in a position to survive (if not thrive) in your absence. If you ignore this issue and (Heaven forbid) you die prematurely, your business will be sold for pennies on the dollar – or go down the drain completely.

Ensuring continuity

Do you have any tips for capturing the value of your business in case of emergency? If you’re a small business owner, have you developed a continuity plan? If not, what are you waiting for?

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Why you need a coach

As I see it, there are three situations when you need a coach:

1. Your life/business stinks and you are convinced you can’t do anything about it.

Well, you could be right, but you only know what you know. You might be surprised. Folks sometimes assume that their life or business situation is set and can’t be changed. Never assume something as dangerous as this. There are wonderful people out there who can help you transform your situation. They’re just waiting for you to ask.

Just the same, if you really felt that your situation couldn’t improve, you probably wouldn’t be reading this post. That means, by definition, you do have hope. That’s encouraging.

2. Your life/business stinks and you have no idea what to do about it.

If this describes you, you are the perfect candidate for a coach. Read on.

3. You are satisfied with your situation.

I’m a huge fan of finding satisfaction in life regardless of the circumstances. Things could always be worse. You are blessed if are content in life. But that doesn’t mean you should go live in a cave. Anyway, if you have read this far, you’ve told me that there are some elements of your life or business you’d like to change.

Be clear and specific about where you need help

When I started my career as a financial planner, I had absolutely no idea how to sell, how to do financial planning, or how to run a business. I also had no money and needed to get up to speed fast.

When I started my blog, I was also at a complete loss. I had zero technical skills, and no understanding on how to make any money blogging. I wasn’t even convinced I should have a blog.

Both these situations created tons of anxiety and I can’t stand living in anxiety. I knew that the only way I’d ever get clarity would be to ask help from people who have what I wanted. I was really clear and specific on what I wanted help on.

Pinpoint who can provide it

In both of the situations described above, I was clear on what I wanted. All I had to do was to find people who had it already.

That was easy. With regards to my financial planning career, I just looked within the firm that hired me. I observed the most successful people and I got to know as many as I could. I was looking for people who seemed to be interested in others, not just themselves. It didn’t take long to find lots of great candidates.

On the blog, I just threw myself out there. I commented on other blogs and made friends. Fortunately, in the personal finance blogging world, almost everyone is happy to help. That goes from the top bloggers to the newbies. Everyone seems to be delighted to lend a hand.

The approach

Hiring a coach for free is far better than paying a coach. Someone who joins your team without being compensated does so because she cares about you. She’ll go far beyond what a paid coach will do. OK, so how does someone come to care about you?

People care about you when they realize you care about them. You can’t fake this. You have to actually care. Express interest and mean it. Find ways to serve your would-be coach without being asked. Don’t manipulate. It won’t work. Find a place within yourself that really cares about this other person and express it by deeds.

Once you’ve established a caring relationship, ask your future coach for a 5 minute conversation. Tell them what you are struggling with and ask if they would be willing to help you. If you’ve done your homework, the answer will be ‘yes’ 90% of the time.

During your 5 minute talk, ask if they would be willing to take short calls from you from time to time. Don’t abuse your relationship. Everyone is busy, so make appointments and don’t call them randomly. Get to the point and respect your coach’s time whenever you call. At the end of each call, ask your coach what you can do for them. Even if she says there is nothing, look for ways to be helpful and deliver.

For example, let’s assume I ask you to help me understand how much money I need to retire, and you help me do the calculations because you’re a math wiz. Clearly, I can’t help you in the same area… But maybe you need to earn some extra money. I can put the word out and really go the extra mile to help you find those opportunities… Right?

Why your coach would love to help for free

Your coach got help along the way to success. Also, the most successful people in life love people. Look around and you’ll see it’s true. Let me ask you this: how do you feel when you know you’ve helped someone else? There isn’t a better feeling in the world, is there? That’s why your coach wants to help you (as long as you show that you care about them and respect their time).

Have many coaches and let some go

Over time, your coach will have taught you what you need to know. You’re needs will change and you might need the assistance of someone else. There is nothing wrong with that. Just remember to check in from time to time with your old coach. They care about you so let them know how you’re doing – and continue looking for ways to help them.

Be a coach

When all is said and done, you learn more as a teacher than a student. That’s another reason coaches love to help you. They learn too. When you get into a position to be helpful to others, take advantage of it. Look for opportunities to do so. When you see someone struggling, lend a hand. The only way you’ll ever get into that position is if you ask for help when you need it.

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I’m with you. But tread carefully.

Common wisdom can be both helpful and dangerous.

For example, it tells us that most small businesses fail because they don’t have enough cash flow or are under-capitalized.

That’s true and helpful. If you understand that, you’ll take steps to make sure you have enough working capital and start up capital for your business. The last thing you want is to start up a business and end in trouble looking for business debt relief.

But other common wisdom is false and extremely dangerous to the health of your business.

What is the most dangerous advice?

Do what you love

Why is this such a terrible idea?

Because it encourages you to think of your business as anything but a business.

When you think this way, your business becomes your passion. Your art. Your love.

Hogwash.

You might love giving haircuts but that doesn’t mean you know how to run your own hair salon. It doesn’t even mean you’re a good barber.

You might love playing guitar, but there are plenty of starving musicians who can’t manage their own lives let alone a music store.

Do you love reading? Does that qualify you to own a book store?

I have seen more people fail at small business because they ìdid something they lovedî rather than for any other reason.

Am I saying you should continue doing something you hate just because you make good money?

No.

Am I saying you should abandon your dreams?

Not in the least.

I’m saying there are alternatives.

I’m saying dream big, but be practical.

Keep your eyes open and be realistic. If the universe tells you something, my advice is to listen.

Turn that (false) common wisdom into something powerful and productive.

Instead of doing what you love, love what you do.

Find something in what you do that you love.

Let that part of your work be the expression of your true self.

If you are a lawyer, but would really rather be an artist… Can you find something about the way you practice law that is artistic? I’m sure it’s not that tough.

Or… Can you find a way to be the legal representative for artists?

I met a man who was a wonderful CPA, but he hated it. Let’s call him Jim.

He was bored to death and was desperate to find a better job. But he was cursed with being really skilled at accounting. To make matters worse, he made a great deal of money at the same time.

While he couldn’t stand auditing or doing tax returns, he loved giving strategic business advice to business owners.

He looked for interesting small business ideas but had no idea what business to open.

Then he realized that he should become a business consultant. That way he balanced his skill set with desire to be creative and resourceful. He maintained his tax practice but built his consulting business slowly until he could focus most of his efforts doing that.

Can you leverage your current job and skill set into an area you enjoy?

You may or may not be able to do this. Not everyone is in a position to do so. I understand that.

If you still want to pursue a small business in a brand new arena, go for it. But make sure you are going to love the entire business, not just a small part of it.

For example, when you open your own shop, you’re going to need to do budgeting for your small business. You’re going to have to track your receipts and spending. You’ll need to learn about health insurance. How do you feel about managing people? You’ll have to be a good manager too.

You see, my experience tells me that there really is no free lunch.

Some people will tell you they are blessed. They say they love everything about their jobs. The rest of us are honest – we realize we have to compromise. Find a balance between career satisfaction and financial security.

If I’m right, if we do have to compromise anyway, why not compromise doing something we know we are good at?

I am absolutely convinced that you can find something to love about your work no matter what it is. If not, I’m sure you can leverage your skill set into something you can enjoy.

Do you agree? How have you handled this dilemma?

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Salaried employees generally have an employer-sponsored 401(k) retirement account administered by the company’s HR department. Failing that, many use Individual Retirement Accounts (IRAs) from local banks, credit unions, or brokerages. Some especially conscientious employees use both.

Small business owners tend to likewise be big fans of the IRA, either in Traditional or Roth form. And while these are certainly better than having no retirement plan at all, an IRA is rarely the ideal plan. The self-employed have several retirement options which are both exclusive to them and, often times, more lucrative than the more traditional plans above.

Simple IRA

Simple IRAs are ideal for small business owners who wish to set up retirement accounts for their employees. As Bankrate explains, these accounts were established with businesses of “no more than 100 employees who earned $5,000 or more on the payroll for the previous calendar year” in mind.

Over time, Simple IRAs have become most commonly used by employers with seven or fewer employees. Fortunately, the Simple IRA is extremely easy to set up, requiring just four pages of paperwork and about ten minutes of one’s time. Employers are limited to contributing 3% of an employees pay, up to an $11,500 yearly contribution limit.

The Solo 401(k)

One rarely discussed advantage of self-employment is the existence of retirement accounts with much higher yearly contribution limits. The Solo 401(k) account is a prime example. SmartMoney explores how Solo 401(k) plans work, explaining that they’re essentially regular 401(k) accounts with much higher contribution limits: up to $49,000 per year in 2010, depending on age, income and other circumstances.

Putting things in perspective, regular 401(k) and IRA contribution limits top out at $16,500 and $5,000 per year (not counting catchup contributions), respectively. It should be noted that Solo 401(k) plans are generally restricted to business owners, rather than employees of the business in question.

The Solo Roth 401(k)

Solo Roth 401(k) plans are similar to regular Solo 401(k) plans, but offer the tax advantages of a Roth IRA. As you may know, Roth IRAs are accounts for which contributions get taxed, but withdrawals (which contain the accumulated savings, interest and investment returns of decades) do not. Moreover, InvestorGuide reveals several key advantages the Solo Roth 401(k) holds over a regular Roth IRA:

• High income earners can contribute to Solo Roth 401(k) accounts even if they’re not eligible for a Roth IRA
• You can contribute much more per year to a Solo Roth 401(k) as compared to a Roth IRA
• You can borrow from your Solo Roth 401(k)
• You can avoid (if you wish) the required minimum distributions of a Roth 401(k) by rolling its funds over to a Roth IRA prior to age 70-1/2, so long as you set up the Roth IRA account five years prior
• You can also maintain a Roth IRA in conjunction with a Solo Roth 401(k), which expands your potential annual contributions even further

The Simplified Employee Pension (SEP) IRA

The Simplified Employee Pension IRA (SEP-IRA) is in many ways similar to a Solo 401(k). While both have the same maximum annual contribution limit, it takes a higher level of income to max out the SEP-IRA. In 2009 and 2010, self-employed individuals and business owners can contribute 20% of net self-employment income or 25% of W-2 wages up to $49,000 per year. Contributions are tax deductible.

Withdrawals prior to turning 59-1/2 are subject to a 10% penalty (plus income taxes), while withdrawals after 59-1/2 are just taxed as ordinary income. Unlike defined contribution plans, there are no restrictions on whether or how much money you can contribute to a SEP-IRA in a given year. SEP-IRAs are also designed for one person businesses or business owners with employees, rather than for the company’s employees themselves.

Keogh Plans

Keogh plans are a type of defined contribution retirement plan. Established by Congressional legislation in 1962, Keoghs allow tax deductible contributions of up to 25% of annual income up to $49,000. Keogh funds can be withdrawn by 59-1/2 and must begin by 70-1/2.

A Keogh (also known as an HR10 plan) can be invested into the same broad range of securities – stocks, bonds, CDs and annuities – as can traditional accounts like 401(k)s and IRAs. Investopedia cautions, however, that their high contribution limits are accompanied by greater paperwork burdens and upkeep costs.

Defined Benefit Plans

Described by Bankrate as “the most expensive and complicated retirement plan for the self-employed,” defined benefit plans are nevertheless an option for self-employed individuals with “mountains of money” to put toward retirement. Employers can save an eye-popping maximum of $195,000 per year, but there’s a catch: an actuary is needed to determine the exact amount that can be contributed (a rather costly expense).

In contrast to the flexibility offered by Solo 401(k) accounts and Simple IRAs, a defined benefit plan is an extremely structured arrangement that must be operated in accordance with strict rules. Largely because of these expenses and complications, Bankrate finds that there are roughly 38,000 defined benefit plans today, down from 114,000 in 1985. Nevertheless, they remain a worthwhile tax-deferral possibility for wealthy business owners.

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Prepare your gear, prepare yourself

If you want to maximize the impact of your business travel, you’ll need to prepare ahead of time. Besides packing the proper attire for the conferences and meetings that you’ll attend, you should also pay attention to any gear that you might need.

You’ll want to have just enough to wow clients without having to haul around unnecessary stuff. You should start your planning by asking yourself some questions about your trip.

If you work for a company, most of the trip’s goals and activities will most likely have been decided for you. If you’re self-employed, on the other hand, you have to define your goals yourself.

• How long is the trip? The longer the trip, the more preparation (and stuff) is generally required.
• What kind of work will you be doing? Will you be preparing or giving presentations? Will you be editing audio or video?
• Will you have to tote everything with you, or will you have access to a temporary office? If you have to meet multiple clients in the field, definitely try to pack light.

I have slightly different preferences depending on the trip, but here is my general gear list for business travel.

• Laptop or netbook: Right now I have an HP Pavilion dv6 laptop and a HP Mini 110 netbook that I use. I love both and I really appreciate the fact that they both have good battery life.
• Laptop/netbook bag: I need my laptop bag to double as my ‘purse’ when flying, so it has to have plenty of space for storage.
• Spare battery: Depending on how (and how far) you’re traveling, you should consider bringing a spare laptop battery so you can work for extended periods without an electrical outlet.
• Chargers: Having chargers for both your computer(s) and phone is a necessity.
• Camera/video camera: These items are small and easy to bring along, so I usually slip them into my bag.
• Thumb drive: You never know when you’ll need to copy or transfer a file, so bring a thumb drive. This can also be handy if you’re giving a presentation.
• Laser pointer: The last thing you want to do is to get stuck in front of the screen giving a presentation without a pointer. Bring your own just to be safe.
• Business clothes: This should go without saying, but be sure to pack appropriate clothes for the business aspects of your trip.
• Business cards: Don’t forget to bring business cards! If you don’t have any, you should have some made up. You’ll be amazed at the number of times you’ll be offered a business card and/or asked for one in return. Don’t get caught unprepared.

Keeping it light and efficient is my priority. In general, I’ve found that the less I have to drag around, the better the trip goes.

Tax treatment of business trips

I also want to remind you to keep all your receipts during business trips. If you’re working for a company, keeping receipts is important for getting your expenses reimbursed. Even if their not strictly required, having a receipt could quickly resolve any disputes or questions.

If you’re self-employed, then you’ll need your receipts to support any travel-related tax deductions that you might want to take. So… What types of expenses can you deduct?

Tax treatment of business travel expenses is covered in IRS Topic 511. What follows is a brief summary of some of the key points.

Travel expenses

If your trip is entirely business-related, and you’re traveling away from home, you can deduct all your travel-related expenses such as airfare, airport parking, your rental car, cab fare, etc. Just keep in mind that if you redeem reward points or frequent flyer miles, you can’t deduct the expense.

Lodging expenses

The same general rule applies: if your stay is for business, and you’ve traveled away from the general area of your “tax home,” you can deduct your expenses. If you stay a few extra days and make it a personal vacation, you can’t claim the deduction on the extra days.

Meals

Assuming that your meals are directly related to your business travel, they’re likewise deductible. However, the deduction for business meals is typically limited to 50% of the unreimbursed cost.

Tracking your receipts

Given the importance of your receipts, you need to be 100% sure to keep close track of them. I always take an envelope with me and dump all receipts into it as I receive them. Then, when I get back home, I sort and organize them, making notes where necessary.

It’s best to process your receipts within a day or two. If you wait longer, you could lose them or forget the details. If you’re looking for an electronic solution, I recommend using Evernote to capture and archive your data.

While this level of documentation might seem tedious, it can help you maximize your reimbursements and/or result in significant tax savings.

Your thoughts

Okay, I’ve shared a few of my thoughts on making the most of your business trips. Now, I’d love hear your tips. What steps do you take to prepare for a successful trip? How do you keep track of your expenses? Do you have any other tips for enhancing the value of your business travels?

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My husband is a landscaper. During the winter his work gets a little slack. Does that mean that we can tap into our emergency fund to help cover our expenses or should we open a separate account just for this situation?

In some ways, this is an issue of semantics – how exactly do you define your emergency fund? To me, a seasonal slowdown does not qualify as an emergency. Rather, it’s a predictable hiccup in your income stream, and it’s best addressed through proper budgeting.

Ultimately, my advice would be to create a dedicated emergency fund that is to be used only for unanticipated emergencies. Alongside that emergency fund, I would create a separate “income-smoothing” account.

If you’re looking for a bank that makes this really easy, you should check out ING Direct, as they make it very easy to create subaccounts for this sort of thing.

Smoothing out your income

In order to smooth out the peaks and valleys throughout the year, I would recommend adding up your annual expenses. Next, compare that number to your annual income.

If you’re spending more than you earn, that problem needs to be addressed first. Perhaps you’re a bit looser with your spending during the good times, or maybe you need to reign things in throughout the year. Whatever the problem, you need to make sure you’re living within (if not below) your means.

Next, divide the total by twelve. This is your average monthly expenditure. With variable income, you’ll have months where you earn more than you spend and months where you earn less than you spend. The goal here is to smooth things out across the year.

This sort of smoothing can most easily be achieved by directing all income into the income-smoothing account. Then, on a monthly basis, transfer out a “salary” to your regular checking account to cover your expenses (don’t forget about retirement investing, emergency savings, and so on).

The ultimate effect here will be for you to build up a cushion during the good months that you can tap into during the bad months. By keeping this account separate from your actual emergency fund, you won’t be tempted to draw down the latter when things get tight.

A real-life example

I grew up in a situation somewhat similar to what Vivian described. My dad was a school teacher and was therefore only paid for nine months out of the year, and my mom stayed home with the kids. While the school district gave them the option of spreading my dad’s salary out into twelve equal checks, my parents never did this.

Instead, they took his pay over nine months and then simply saved a portion of each check to cover the summer months. Doing this allowed them to get their hands on the money sooner and to earn a bit of additional interest while still covering the lean months.

As far as I know, they didn’t have separate savings accounts for smoothing things out, they just had a lot of discipline. Adding a dedicated account for this purpose makes it much easier to keep track of where things stand, though, and should greatly increase your likelihood of success.

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If you’re wondering what this is all about, estimated tax payments most commonly apply to the self-employed and/or those with significant investment earnings. In short, if you have a decent amount of income that isn’t subject to income tax withholding, then you might get hit with an underpayment penalty at the end of the year unless you make quarterly estimated payments.

You can also trigger an underpayment penalty by paying your estimated taxes late, though in most cases this will end up being a very small amount. In fact, if you only miss by a day or two, the IRS probably won’t even notice.

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As of right now, the Bureau of Labor Statistics estimates that approximately 15 million people are unemployed. That means you or someone you know has probably suffered a decrease in income due to job loss.

What are some ways you can deal with unemployment? How can you help your friends?

Analyze your financial situation

You will feel better and increase your odds of success if you can visualize your new cash flow on paper. This may be a difficult step, but it will give you a clear picture of where you stand. Remember, the goal is to get a workable plan to keep your family afloat.

Ask all the tough questions now rather than later.

Are you getting a severance package? How long will the money last? Can you maintain your health insurance, perhaps by using COBRA? Or do you need another option? Perhaps you can switch to your spouse’s plan?

How much are your monthly expenses? Figure out what is essential for your bills and start cutting what you can. Do you really need cable? Can you adjust your cell phone bill? Have you tried services like Bill Shrink and Mint to see if you can find more ways to save money? Can you shop more frugally for your essentials?

For example, when buying groceries, could you buy ingredients to allow you to cook meals from scratch rather than using ready-made meals? Cooking homemade meals tends to be cheaper than pre-made food. It could have a significant effect on decreasing your grocery bills.

Develop a financial plan while you’re in between jobs

Use all of the resources available to you

If you can legitimately claim benefits that you’re entitled to, such as unemployment compensation or state insurance benefits, take them. It’s a temporary fix, but it can help take some pressure off as you find your next job. Reducing your monthly expenses can help while you’re looking for your next job.

Find a part-time job while you’re hunting for work

If you can work some flexible part-time jobs, you can alleviate some of the financial burden.

Getting a part-time job can help as you still need to have some available hours for job hunting and interviews. Some flexible part time jobs you may consider include:

• Pizza delivery
• Barista
• Hotel/hospitality
• Call center customer service rep
• Waiter/waitress
• Retail work
• Private tutor
• Bank teller

The idea is to offset some of the income lost as you get back on your feet. Double check with your state’s employment agency to see how your part time job will affect your unemployment benefits.

Avoid credit cards

It can be extremely tempting to use your credit cards as part of your bill pay system, but you should avoid this as much as possible. Credit cards should be considered a last resort, as they can add more financial woes to your difficult situation.

Have a game plan for finding your next job

Utilize your network of friends and family

There are many job openings that aren’t published online or in the papers. Take advantage of your connections and ask friends and family to keep their ears open for any opportunity that would be a good fit for you.

Ask your former manager for a letter of recommendation

If you were a great employee and did not burn bridges when you were laid off, it could help if your supervisor could write a letter of recommendation.

Visit your state’s employment agency

Many state employment agencies offer resume and cover letter help. If you’re hoping to bounce back quickly, it certainly helps to have your best foot forward. And if you’re in a creative arts type of career, make sure your portfolio is updated.

Decide on what you’re looking for in employment

As you work towards the next step in your career, be open to trying different things in your field. Perhaps your skills can be used in a different (and perhaps more stable) industry. Sometimes you can find a better job after you lose your current one.

See if self-employment is for you

You may want to venture out and start earning money on the side. Use this as an opportunity to test the waters by taking some temporary assignments.

Your thoughts

I’m interested in hearing your thoughts about how best to handle a job loss. Do you have a plan in case you get laid off? Have you ever survived a job loss? What helped you to keep your finances in order?

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Some people start out with something like consulting or programming from home for a few hours each day. Others do their freelance work outside their home. Virtually all of these people have to set aside time and space for invoicing their customers and managing their business finances.

One thing that most freelancers need is their own home office space. Having a home office for your side business is a great idea, but it can be easy to start focusing on the wrong things and turn that extra income into a big expense. Managing and maintaining a home office takes a mix of frugality and creativity.

Organizing your bookkeeping

Quite simply, if your side business isn’t taking in more than it’s costing, then you’re in trouble. If you haven’t already, open a separate checking and savings account for your business, even if it’s only a small amount of side income right now. It’s good practice to separate your personal finances from your business finances — especially if you want to set up a formal business and limit your personal liability.

After determining your budget, you need to figure out how you’re going to keep track of your finances. Besides keeping your own ledger or spreadsheets, you’ll probably want look at software to keep yourself organized. Popular bookkeeping programs include:

• QuickBooks
• Peachtree
• Quicken

When comparing financial programs, see if this is something you actually need or if it will complicate your finances. If you’re spending most of your work time getting the invoices right, you need to switch to another program.

Equipping your office on a budget

Decide on Your Budget

Don’t just go out and buy the latest equipment in hopes of deducting it at tax time. As you look at your finances, decide if you really need a certain piece of equipment. Can you justify the extra expenses? Or are you just looking for an excuse to buy a fancy new gadget? Look at your regular expenses for your side business and plan your budget accordingly.

Deciding where to have your office

Next, spend some time finding the ideal spot for your office. You need your office to be in a quiet, less trafficked part of the house if you plan on getting any work done. Don’t have your desk and equipment in your bedroom if you can avoid it — this will blur the lines of work and home, and you may find yourself struggling to stop (or start) working.

Office furniture and office equipment

If you’re looking for office furniture, consider starting off with Craigslist and grabbing a deal from an entrepreneur who is moving up. Get creative and hunt around at local yard sales. You will be surprised at what you can find if you’re willing to explore. If you really want to upgrade your furniture, wait until you hit a financial milestone. That way, every time you sit down in your new chair, you’ll think of the 5 new clients you’ve acquired.

When you’re first starting out, you should also learn to make do with what works instead of drooling over top of the line business equipment. For example, Google Voice is a free communication system that allows you to manage your calls, voice mails, and text messages all in one place. If you’re a one person operation, this can be a great option. You won’t have to buy a separate line for your business, which may be overkill anyway.

Unfortunately, Google Voice is by invite only right now. For their part, Google says they are trying to keep the wait short, so you might want to go ahead and request an invite. Another alternative is Skype, which allows you to upgrade from their free service to an inbound landline number.

Maximizing productivity

It can be hard to work from home for some entrepreneurs. If you have children at home, they may have a hard time understanding why you’re working even though you’re home with them. Try to have set work hours and try to be consistent with them.

Some people work after the kids are in bed, while others wake up a couple of hours early to get their work done, or do it while they’re in school. The point is you have to have a set amount of time to hustle if you want to generate a consistent income.

How do you know if you’re wasting valuable work time for frivolous activities? Just like you would with finances, you need to see how your spending your time first before optimizing it. I find Rescue Time to be helpful with keeping track of what I’m doing.

Your thoughts on managing a home office

The wonderful thing about having a home office is that you don’t have to buy the latest equipment and software to get started. You can start small and build slowly according to your business needs.

Do you work from home either part-time or full time? If so, how do you keep your finances organized? What steps have you taken to create a useful work space? And how do you remain productive?

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Making it legal

My first priority was to make sure I was doing everything on the up-and-up. Even though my freelance business was incredibly small (now it’s just small), I registered with my city to get a business license. I also had to fill out some additional paperwork because I was doing business under a name different than my own. Everything was straightforward and painless.

I also had to decide on how I wanted my business organized. The main options were:

• Sole proprietorship: A sole proprietorship is the simplest business entity. From a legal standpoint, this sort of business is owned and run by an individual, and there is actually no legal distinction between the individual and the business.
• Partnerships: A partnership is a type of business entity in which multiple partners own the business and share in the profits and/or losses. There are some potential tax benefits to partnerships over corporations, but the owners of a partnership might be exposed to greater personal liability as they would as shareholders in a corporation.
• Limited Liability Company: LLCs have been a popular choice for some bloggers and freelance workers because they are very simple to operate while still providing personal liability protection.
• Corporation: A corporation is an institution that is granted a charter establishing it as a completely separate legal entity from its owners/shareholders. There are multiple types of corporations, each with their own advantages and disadvantages. In most cases, however, forming a corporation is overkill for a freelancer.

I ended up sticking with a sole proprietorship. Aside from nailing down the right business structure, it’s important to apply for any necessary city or state business licenses or permits (if applicable). Many municipalities have resources available to point you in the right direction. There are also services like Legal Zoom that you can help take care of the paperwork if you’re not comfortable with this sort of thing.

Setting up a business bank account

By far my favorite part of my freelance work is getting paid. I’ve set up a business bank account to handle this income. While it’s only me, having a business account can be very helpful for keeping your finances in order, and might actually be required if you wish to maintain the liability protections associate with certain business structures.

When searching for the right bank, I considered some features that I wanted to have:

• No monthly maintenance fee
• $0 required minimum balance
• Free online BillPay service
• Conveniently-located ATMs

I also knew I wanted to have a local branch for handling any problems that might come up. I decided to go with Wachovia and opened a free business checking and savings account. I just need a simple account without a bunch of extra features that would add on unnecessary fees.

The process of opening my business checking account was fairly easy. I just had to bring in my business paperwork, ID, etc. into the local branch. I opened my savings account a little bit later. I also set up an EFTPS (Electronic Federal Tax Payment System) account to pay my estimated taxes on a quarterly basis. Paying taxes throughout year is important because I want to avoid an underpayment penalty.

Building a solid source of income

If you’re looking into starting a small business, you should really check out the Small Business Administration’s website. It’s a fantastic resource and can help answer many of your questions. It also pays to check our your local SCORE chapter to receive some valuable information on how you need to expand your small business.

I hope that by writing a bit about my freelance business, you can see that it’s possible to have another source of income outside of your day job. Taking control of your finances means more than just cutting expenses, it includes building your income.

Have you done anything to build a side income? If so, do you have any tips or tricks to share? Please leave a comment.

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I try to make my irregular income go as far as possible. With so many options at my disposal, I want to make sure I’m not wasting these great opportunities. Since I’ve had the opportunity to chat with some readers, I know that some of you have also created, or are currently building, some extra income streams. I thus thought it would be worth sharing some tips on handling the unpredictable cash flow.

Handle your tax obligations first

My first piece of advice is set aside money for taxes before you budget the rest of your side income. You don’t want to have an unexpected tax bill come due, and you definitely want to make sure you avoid underpayment penalties. If you need help figuring out your estimated taxes, you can use Form 1040-ES.

This year, I’m paying estimated taxes on a quarterly basis for my freelance business. I want to make sure I have the right amount when the next quarter becomes due April 15. I’ve put aside 30% of my freelance income aside into a savings account and then pay I pay taxes directly from that account.

I use EFTPS (Electronic Federal Tax Payment System) to handle the payments. It’s free, and you can manage everything online. You do have to register in advance and apply for a PIN for the account, but I found it to be an easy process.

Reinvest back into your business

You may think that since I’m usually writing about reducing debt and building up some savings, I’d mention that as then next goal. Actually, my advice is to make sure that you allocate some money back into growing your business. If you want to continue to grow your business, you can’t afford to take any shortcuts.

Some areas you might want to consider investing in include:

• Office equipment and supplies: Don’t go out and buy brand new computers and software just because you have some extra money, but do look to see if there are any equipment upgrades that will help you stay ahead of the competition.
• Training and seminars: You want to stay at the top of your game so you can provide more value to your clients and generate more business.
• Bookkeeping: If handling the bookkeeping or accounting for your freelance work gets in the way of “real” productivity, consider outsourcing it to a professional. This will pay for itself down the road, and allow you to spend more time working on your project(s).
• Business savings: Yes, I’m suggesting that you put some money in savings for future business expenditures. Since you can’t always predict your busy and slow months, having a cushion reduces your chances of going into debt while weathering the storm.

Prepay your monthly expenses

If your income varies, my advice for your next step is to play it safe and deposit into your checking account enough money to cover your regular monthly expenses for awhile. Everyone has a different comfort zone, but having an additional buffer for the lean times will make your life less stressful. We try to put in an extra month or so as our checking buffer (in addition to our regular emergency fund, which we’ve also bulked up), and it has given us some peace of mind.

In the past, we’ve used some of our side income to go ahead and take care of things like major car repairs or other household needs. I’ve also set up an automatic transfer from my business checking account into our joint savings account at ING Direct so we can earn a higher interest rate than is available at our local bank.

Reduce debt and invest

Once you’ve taken care of taxes, re-invested in your business, and taken steps to smooth out any bumps in the road, the “regular” financial rules apply. If you’re carrying any debt, you should consider directing at least some of your excess toward debt reduction. Investing for the future is also an important goal. And guess what? There are some special tools available for the self-employed, including the SEP-IRA and solo 401(k), which are great retirement savings vehicles.

Freelance thoughts and tips

Do you own your own business? Or maybe you generate side income in another way? If so, how do you budget and handle the resulting irregular income?

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Our housekeeper is not our employee; she is an independent contractor. Because of this, taxes aren’t an issue.

This is a convenient answer, but is it true? It’s clearly beneficial from a tax perspective to hire your housekeeper as independent contractor vs. an employee, but just because you claim they are an independent contractor doesn’t necessarily make it true.

According to the IRS:

To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Relationship of the Parties.

(source)

While I’m not a tax expert, it seems likely to me that JD’s going to run into trouble with the Behavioral Control aspect, where the IRS is interested in whether or not the employer “has a right to direct or control how the work is done, through instructions, training, or other means.” I’m guessing that JD and his wife do exert some level of control over the work being done.

As further evidence that the IRS frowns on treating a housekeeper as an independent contractor, check out IRS Tax Topic 756, where it states:

Household employees include housekeepers, maids, baby-sitters, gardeners, and others who work in or around your private residence as your employees. Repairmen, plumbers, contractors, and other business people who work for you as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but how they do it.

Also note that the IRS has ruled in the past that the employee/contractor issue is dependent on the nature of the relationship, and not the existence of a contract stating that someone is an independent contractor. Again, just because you say someone is a contractor doesn’t mean that it’s true.

Now… As I noted above, I’m not a tax expert, so perhaps my interpretations are wrong. As always, please feel free to chime in by leaving a comment if you have anything to share.

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After that, I applied for a Discover Business card. I was once again enticed by a generous signup bonus, but I ultimately ran into similar problems regarding card acceptance. There are a few key places around town that won’t accept anything but Visa or MasterCard. Thus, I’m once again in the market for a business credit card.

Features of the ideal business credit card

My needs are simple. I want a cheap, widely accepted card — thus, I’m looking for a Visa or MasterCard. I also don’t carry a balance, so the APR is a non-issue. I’m more interested the annual fee (or lack thereof). Rewards are great, but my business expenses aren’t actually that high, so they’re not a huge deal.

The best business credit card — for me

As of right now, the most attractive business credit card of 2012 out there for my needs appears to be the new AT&T Universal Business Rewards credit card from Citi. Most importantly, this is a Visa card and there’s no annual fee. The rewards also match up fairly well with my relatively meager spending.

For example, I’ll get 5 ThankYou points for every dollar spend on AT&T products/services (currently DSL and phone; also considering an iPhone) as well as 3 ThankYou points per dollar spent at gas stations, office supply stores, and on professional services (like legal and accounting). All other purchases qualify for one point per dollar spent. While points aren’t quite as good as cash, I can trade them in for gift cards at stores that we frequent.

Oh, and for those that are looking for a bit of interest-free financing, there’s a six month introductory period with 0% APR on purchases.

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Penalty for Underpayment

What happens if you don’t pay enough, or don’t pay soon enough.

If you don’t pay enough estimated tax, or don’t pay on time, you’ll have to pay a penalty. It’s best to avoid this penalty, of course — but you don’t have to lose sleep over it. The penalty is equivalent to nondeductible interest on the amount you underpaid, for the period of the underpayment. If you underpay only a small amount, or you correct the underpayment quickly, the penalty will be small.

Based on that, it looks like we’ll be on the hook for two days of interest, which shouldn’t be a big deal. In fact, I’ve heard that the IRS doesn’t even bother billing for this if the amount is small enough. That makes sense, I guess, as it costs them money to print and mail an invoice and then handle the payment when it comes in.

Note that you’re exempt from penalties on a late Q4 payment if you’ve already paid in at least as much as your previous year’s total tax bill, or if you file your taxes and pay the full amount due by February 2, 2009.

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You can either use IRS From 1040-ES or the Electronic Federal Tax Payment System. I’ve always used the former, although I should probably check out the latter. And don’t forget that you might also need to make estimated payments for your state taxes. If you’re looking for a good source of general information on estimated taxes, check out Fairmark.com’s Estimated Taxes 101.

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After having read the comments that various people left and researched the situation further on my own, I am more convinced than ever that separate employers means separate 415(c) limits, as outlined in section 415(f) where it talks about aggregating plans. In fact, while one commenter pointed to the Internal Revenue Bulletin from April 30, 2007 as evidence against this view, here’s a snippet from that same bulletin:

Under section 415(f) and these regulations, for purposes of applying the limitations of section 415(b) and (c), all defined benefit plans that have ever been maintained by an employer are treated as one defined benefit plan, and all defined contribution plans that have ever been maintained by an employer are treated as one defined contribution plan.

However, as Tom Geer pointed out, it’s a bit more complex than simply aggregating accounts on a per-employer basis. Indeed, check out IRC 415(k)(4):

Special rules for sections 403(b) and 408
For purposes of this section, any annuity contract described in section 403(b) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (h)). For purposes of this section, any contribution by an employer to a simplified employee pension plan for an individual for a taxable year shall be treated as an employer contribution to a defined contribution plan for such individual for such year.

The last bit says that SEP contribution are treated as employer contributions, which I knew going in, but… The first part says that 403(b) plans are to be treated as a defined contribution plan that is maintained by each employer that I have control over. In other words, it’s treated as if it’s associated with my self-employment, and thus the contributions get lumped in with my SEP-IRA contributions and counted against the 415(c) limit associated with me self-employment.

So… I was partially right (and thus partially wrong, of course). Since my 457(b) is pretty much on its own according to IRS guidance, I can stash $15.5k there as well as $45k combined between my SEP-IRA and 403(b). This is seemingly in addition to my employer’s defined contribution plan. While this works out to a bit less than I thought I could stash away at the outset, I’m not one to look a gift horse in the mouth. Thanks to all who chimed in to help sort this out. And, of course, if you have anything more to add, please don’t hesitate to leave a comment.

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In short, I’ve been planning on making my required contributions to my employer’s defined contribution plan, maxing out both my optional 403(b) and 457(b), and also contributing to a SEP-IRA based on self-employment income. In response to this, a commenter named CPA1298 asked whether or not I’ll bump up against the $44,000 maximum annual retirement plan contribution limit. As I understand it, the limit that he’s asking about applies to “elective deferrals” in the form of both employer and employee contributions, and is defined in section 415(c) of the Internal Revenue Code (IRC), although it’s actually $45,000 (or 100% of pay, whichever is less) for 2007.

Anyway, I didn’t have a good answer to his question, so I started researching it…

For starters, let’s talk about a bit more about my retirement options:

1. My employer’s defined contribution plan. I had two retirement savings options when I started work — a defined benefit plan (a traditional pension) or a defined contribution plan (I chose the latter). In either case, I would be compelled to contribute 5% of my income to the plan of my choice, and my employer also makes additional contributions. This was a one-time, irrevocable decision that had to be made during my first 60 days on the job.

So how does the 415(c) limit apply to this plan?

As I noted above, my understanding is that this limit deals with elective deferrals (but I may be wrong). Since these contributions are compulsory, and made pursuant to a one-time, irrevocable decision, it seems to me that they should not count toward the limit (but I could, of course, be wrong).

2. My optional 403(b) plan. This account is a tax-deferred account much like a 401(k). I am free to contribute up to $15,500 in pre-tax funds in 2007. There is no employer match.

3. My optional 457(b) plan. This is likewise a tax-deferred retirement savings account. Again, I am free to contribute up to $15,500 in pre-tax funds to it in 2007, and I have confirmed that I can participate in both the 403(b) and the 457(b) up to the full amount (i.e., they don’t share a $15,500 limit, so I can defer taxes on up to $31,000 between them). Here again, there is no employer match.

So those are the options that I have at my disposal through my employer. As I’ve noted previously, however, I also have a decent amount of self-employment income from a sole proprietorship totally unrelated to my day job. Thi brings us to…

(4) My SEP-IRA. I can contribute 20% of my net self-employment income (less 1/2 of my self-employment taxes) to this account. Here again, it’s a tax deferred contribution.

As you can see, depending on how things work, I may or may not run into trouble with the 415(c) limit of $45,000. So that brings me to my main questions…

The most important thing for me right now is determining whether or not the 415(c) limit is applied on a per employer basis. If it is, then it seems that I should have two such limits — one for my day job and one for my self-employment. I have read articles suggesting that this is true (including one from TIAA-CREF, but nothing from the IRS themselves), and the IRC guidance also supports this notion, as they say in section 415(f) that plans of related employers must be aggregated when applying that section’s contribution limitations. The implication here seems to be that plans from different employers should not be aggregated.

The other issue relates to my job-related retirement plans… Am I correct in assuming that the defined contribution plan doesn’t count toward the limit since it’s not elective (or at least it doesn’t appear to be based on my understanding of the term ‘elective’)? If not, then I’m in the clear (assuming the SEP-IRA is subject to it’s own 415(c) limit). If so, then what about the 457(b)? The treatment of this sort of plan seems to be different, and I’ve seen claims that 457(b) plans don’t enter into other plan calculations.

Please not that I’m looking for a concrete answer, so if you disagree with me, please do your best to support your view with information from the IRS. Likewise, if you think I’m right, it would be great if you could point out why.

And before anyone suggests that I seek professional counsel, please note that I’ve already contacted our tax attorney about this. I have, however, yet to receive a clear answer on any of it.

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Estimated taxes can be figured using Form 1040-ES, and you can either pay a lump sum up front, or you can make quarterly payments (see: Important 2007 Tax Filing Deadlines for due dates). The problem here is that, if you don’t pay enough in over the course of the year, the IRS can penalize you.

In general terms, you’ll be subject to an underpayment penalty unless the total of your annual withholding and credits exceeds:

(1) 90% of the total tax owed for the year in question, or
(2) 100% of the tax shown on your previous year’s tax return

That being said, there are circumstances under which #2 becomes 110% of the tax shown on your previous year’s return (see Form 1040-ES for details).

If you’re not going to hit these thresholds via withholding, then you’ll need to make estimated tax payments. Keep in mind that estimated taxes can be paid all at once, or you can choose to file quarterly. But if you file quarterly, the IRS will expect to see approximately equal payments across quarters (although there are exceptions if your income is uneven). Keep in mind that you you don’t necessarily have to pre-pay your full tax bill. Rather, hit the thresholds above and you should be in the clear. Of course, you’ll have to pay the balance due when it comes time to file your taxes next year.

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Don’t forget to make your 2006 IRA contributions before next Monday!

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Thus, I opened a Vanguard SEP-IRA and have been making employer contributions to that on my own behalf (these contributions can be made in addition to traditional/Roth contributions – see here for a handy calculator). Another piece of the puzzle has been to open an optional 403(b) (also with Vanguard) and max out the $15,500 contribution limit.

This is all well and good, but I really, really, really hate paying taxes (don’t we all?), so I’d like to do even more. And then it hit me… In addition to the optional 403(b) plan, my employer offers an optional 457(b) plan. The contribution limits for both of these are listed at $15,500 for 2007, and I have always assumed that these two types of accounts share a common contribution limit (i.e., that your total contributions to both couldn’t exceed $15,500).

Guess what? I was wrong. Over the weekend I finally got around to looking into this, and here’s what I learned over at 457bwise.com:

The Economic Growth and Tax-Relief Reconciliation Act of 2001 (EGTRRA) repealed coordination of contributions between 457(b) plans and 403(b) plans [and 457(b) plans and 401(k) plans]. This means that employees with enough includable compensation can contribute the maximum elective deferral limit to both a 403(b) and a 457(b) [and a 457(b) and a 401(k)]. For 2007, this is $15,500 for a whopping total of $31,000. Participants eligible for catch-up provisions can include even more.

Holy cow! I can shield up to $31k from taxes using these two accounts! While I realize that not everyone is in such a favorable position with regard to the availability of such plans, and that not everyone could afford the contributions even if they were, I now have a new goal… Continue making the 5% contribution to my basic retirement account (this comes with a match of a little better than 8%), max out my SEP-IRA employer contributions (20% of net self-employment income), max out my 403(b), and max out my 457(b).

As I’ve noted previously, it’s looking like we’re not going to be eligible for a Roth or deductible traditional IRA contributions this year, so those are currently on the back burner. If we somehow manage to do all of this and still have money to spare, our next step will be to make non-deductible traditional IRA contributions. In case you haven’t heard, the income limits for traditional-to-Roth IRA conversions are scheduled to go away in 2010. Assuming that’s still the case when 2010 rolls around, we’ll be able to convert these funds into our Roth accounts, effectively allowing us to circumvent the contribution income limits.

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Let me ask you this… Why would I be interested in having my business listed on their site if the information doesn’t even seem to be publicly accessible? In fact, at the bottom of the solicitation, it says that “You will have access to our online data service by password, which will be sent to you after payment has been received.” Why not at least make their database public so those that get suckered into paying might actually derive some tiny benefit from it? My best guess is that relatively few people have been taken in by their offer, and making a half-empty database publicly viewable wouldn’t be very enticing to potential victims customers.

Interestingly, the National Companies Register Corp. is the subject of a “Consumer-Related Investigation” in the state of Florida. Here’s what they’re accused of:

Mail solicitation that can reasonably be interpreted by consumers as an invoice or statement for goods not yet ordered or services not yet performed that does not contain the required 30 point bold warning mandated by Fla. Statute 817.061.

So… You make the call. Is NCRC a scam? It sure looks like one to me.

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We first applied for (and received) the Amex Business Gold Rewards Card. While this card has a $125 annual fee after the first year, it also came with $150 in signup bonuses. Thus, we’re not likely to keep this card beyond the first year.

Our choice for the longer term is the CitiBusiness Card with ThankYou Network which not only offers rewards, but also has no annual fee.

There are, of course, other options out there. For example, the Amex Starwood Preferred Guest Business Card, which offer $100 in signup bonuses, but has a $30 annual fee after the first year. Thus, you can make a good bit of jingle by applying for these cards, but you probably won’t want to keep them beyond a year.

Truth be told, we don’t really need a business credit card, but having one will make the bookkeeping a bit easier (anything charged to that card will be a business expense, so we won’t have to sort through expenditures at tax time). It also helps with the substantiating the independence of our business endeavors, which is important when it comes to maintaining the liability protection offered by an LLC.

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In many cases (such as most sole proprietorships) you don’t need one. That being said, you still might want one — e.g., for privacy reasons, you might not want to disclose your social security number (SSN) when you can otherwise use an EIN.

As it turns out, you only have to apply if you answer yes to any of the following questions:

(1) Do you have any employees?
(2) Do you operate your business as a corporation or a partnership?
(3) Do you file any of these tax returns: Employment, Excise, or Alcohol, Tobacco and Firearms?
(4) Do you withhold taxes on income, other than wages, paid to a non-resident alien?
(5) Do you have a Keogh plan?
(6) Are you involved with any of the following types of organizations?
- Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns
- Estates
- Real estate mortgage investment conduits
- Non-profit organizations
- Farmers’ cooperatives
- Plan administrators

If you end up deciding that you want (or need) to apply for an EIN, you have a variety of options… You can apply via phone, fax, mail, or online. In my case, I decided to handle it over the phone. In short, this involves calling the IRS at 800-829-4933 and working through Form SS-4 with a phone rep.

If you choose to do it this way, I highly recommend having the form in front of you, as this will save the rep from having to read everything to you over the phone. Once your application is complete, they’ll give you your EIN over the phone. The official paperwork will then follow within a couple of weeks. Easy peesy.

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To this end, I dropped by the Post Office to check out what they had available. As it turns out, P.O. Boxes are way cheaper than I had expected. The least expensive option, with a 3″ x 5.5″ opening, was just $26/year. We opted for the second step up (5″ x 5.5″) at $38/year. While the sizes are standard across locations, prices vary depending on where you’re located. This table gives you and idea of the range (prices reflect six month rates) but you have to know which “Fee Group” you’re a part of before you can figure out your exact cost. It’s probably easiest to just call your local Post Office for pricing.

More info on P.O. Boxes is available from the U.S. Postal Service.

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Although the process varies from state to state, forming an LLC is typically pretty easy. In our case, we were able to register online through our state’s website for just $100, and we had an official (albeit electronic) copy of our Articles of Organization in our hot little hands just a day later.

In most cases, there’s no real reason to use one of the many online business registration services. In fact, if you’re worried about making sure that everything is in order, I’d suggest that you spend a few bucks on a consultation with a local attorney that specializes in business law rather than settling for a cookie-cutter solution.

So why did we decide to form an LLC when we could’ve simply continued handled things as a sole proprietorship? The main reason is that we want to draw a clear line between our business and personal lives. In the event that we ever run into any legal issues, we’d like to insulate our personal assets from our professional liabilities. Given the relative ease with which you can establish an official business presence, it’s a no-brainer.

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