You will start a side hustle and become an entrepreneur if you put your mind to it. Think about this: we Americans are most proud of the fact that our country is “The Land of opportunities.” And we are certainly not shy about grabbing these opportunities.
Currently, there are32.5 million small businesses in America. That accounts for 99.9% of all businesses in the country. America also ranked high in the largest business formation growth per year at about 86% in 2020.
As things stand, lack of business opportunities cannot be your excuse for not starting a business or side hustle. But there are other factors you should be aware of before you decide to go all in.
Understand The Difference between Starting a Side Hustle and a Small Business
It is understandable why you could get confused about the two. After all, it is a “business” that helps you generate income. In truth, there is not much difference between the two.
A side hustle is an extra gig you take up in addition to your current job or entrepreneurship as an additional source of income. It is something you do on top of another hustle.
On the other hand, theSBA defines a small business as a sole proprietorship, partnership, corporation, or any other legal form that:
- It is organized for profit
- It has a business premise in the U.S
- It significantly contributes to the U.S. economy through the payment of taxes or the use of American products, materials, or labor
- It is independently owned and operated and is not dominant in its field on a national basis
These attributes expound on the principle difference between a small business and a side hustle. You can also see why one would need you to invest your time as you need to make a profit.
Note That Entrepreneurship Requires Capital Investment
Unlike your side hustle, being an entrepreneur requires you to have the capital to start and maintain the business operations. The amount of capital required depends on the nature of the business you intend to undertake. For example, your business may only require capital for business registration and securing an operating license.
You don’t necessarily have to raise all the money by yourself. There are other ways to raise external business funds without straining your savings like angel investors, venture capitalists, loans, and grants.
Your side hustle may not require any significant investment to start. Remember, your side hustle may be part of your hobbies.
You Can Never Forget Your Tax Obligation as an Entrepreneur
Our very own Nicholas Cage will advise you to never dare mess with the IRS. The institution will make your life a living hell as it attempts to reclaim what you owe them.
The IRS is the institution that brought down the famous mob boss, “Al Capone.” His “plausible deniability in the eyes of the law” principle made him “slippery” for the law enforcement agencies. However, his tax evasion conviction in 1931 finally brought down his kingdom.
That’s how lethal a determined IRS can be. And you do not want to test their limits. Otherwise, your tussle may end with you in a prison cell.
Therefore, once you register your business and it becomes operational, never forget your tax obligation. The great news is that States like Texas offer substantial tax breaks for small businesses. Therefore, you don’t have to worry about the tax strain.
Here is Your Chance to Be Your Own Boss
How often have you complained about your boss doing this or asking you to do that? That does not have to be forever.
You can change your experience by being your own boss. Pretty soon, you will be another person’s boss, and it’s you they will be complaining about during their tea breaks.
Entrepreneurship offers you the opportunity to start your business and run it according to your business plan. You can decide independently on the best way to achieve your business goals.
Should I Be Entrepreneur or Start a Side Hustle
Are you looking to make an extra income but are confused about whether to do it through a side hustle or starting a new business? Find the answer in the next episode of The Building Wealth Podcast with Dr. Wheeler and start making money now!
How to Start Saving Money for Retirement as an Entrepreneur
How to start saving money for retirement may be the last thing in your mind right now. You probably have other pressing issues to worry about, like how to sustain your business or improve your competitive advantage.
However, it is also better to worry about your retirement now than later. The thing about being an entrepreneur is that your job is not permanent and pensionable. Therefore, you are the only one concerned about your retirement.
It would help if you start planning for your retirement early enough. And here is a guide on ways you can make these plans.
Start as Soon as Your Business Becomes Profitable
Saving for your retirement should not come at the expense of your business. For example, no one expects you to save for your retirement from your business capital.
You have to give your business enough time to start making a profit. The amount of time your business takes to start making a profit may differ.
Only then will you depend on it to finance your retirement savings. And in that case, here are retirement saving plans to consider.
Simplified Employee Pension (SEP) IRA
The SEP IRA may be a good plan if you have a few or are the only employee in your business. The plan allows you to make flexible, tax-deductible contributions towards your retirement.
You can invest up to 25% of your net income up to the determined cap as dedicated by the inflation rate. Currently, the cap is at $61,000. Contributing to this plan will also help you lower your tax bill as an entrepreneur.
Roth IRA vs. Traditional IRA
Individual retirement accounts are a good place to start if you are beginning to save for your retirement as an entrepreneur. They are tax-advantaged vehicles designed for long-term savings and investment. Traditional IRAs and Roth IRAs are the most popular IRAs.
The difference between the two plans is the taxes. Under the Roth IRA, you contribute to the account from your after-tax income. However, under the traditional IRA, you contribute your pre-tax dollars.
The Roth IRA allows your retirement savings to grow tax-free. You will not have to pay taxes on earnings when making withdrawals after retirement. You can also withdraw your contributions without penalties even before 591/2 years. But this is an option you should not think about taking.
On the other hand, the traditional IRA allows your investment to grow under a tax-deferred system until you withdraw them during retirement. On this one, you will pay an income tax once you start withdrawing from the account after retirement.
Cash Balance Plan
Are you looking to break down retirement savings limit barriers? You can spice up your retirement savings by switching from your typical pension plan based on terminal earnings. For example, you can switch to a cash balance plan based on your average career earnings.
Acash balance plan entails a defined-benefit pension plan with the option of a lifetime annuity. It is a hybrid retirement plan that blends attributes of a traditional pension plan with some elements of the 401(k)/profit-sharing plan.
The cash balance plan allows you to contribute up to $407,500 annually. The generous contribution limits increase with age. Therefore, you have a chance to turbo-charge your retirement savings even at an advanced age.
Another benefit of using the cash balance plan is that it will generate high annual tax deductions for your business. Therefore, you benefit from a long-term retirement wealth creation and potential high tax deferral.
Life Insurance Retirement Plan
The life insurance retirement plan (LIRP) is a potential strategy to supplement your retirement income.LIRP utilizes the cash value of a permanent life insurance policy to hold retirement assets. The strategy requires you to build up a cash value that you can draw from to supplement your retirement income.
It is particularly a preferable option if you have a life insurance policy with a substantial cash value and no longer require insurance protection. It is also ideal if you prefer to minimize your market risk.
The best part about LIRP is that there is no limit to how much you can contribute. It also does not replace your 401(k) or IRA. Therefore, you can use this vehicle to fund your retirement, especially when your business generates huge profits.
Do You Need Help Choosing the Right Retirement Plan for You as an Entrepreneur?
As an entrepreneur, it is always best to make informed decisions. That may sometimes require consultation and getting your facts straight. Tune in to the Building Wealth Podcast today for more details on what could be the best plan for you as an entrepreneur!