How Do I Figure Out My Career Passion?

 

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Every so often, I’ll meet with a client looking to do something else with their life. Something more than their regular job.

The first and most important thing I’ll ask is, “what are you passionate about?” It’s a question that’s developed after having worked with many people over my career. Both business owners and employees.

If they aren’t sure what they’re passionate about I’ll ask two more questions. The first, what would they do for free? The second, what are they working on late at night because they love it?

I’ll even have a possible third question. That question, if someone gave you $10 million on the one condition that you got up and went to work every day, what would that work be.

Once they’ve honestly answered those questions, they’ve created a new potential path for themselves. It’s up to them on whether or not to follow it. But at least now they know what that passion is.

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IRS Advice On How to Pay Yourself When You Have a Business

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People go into business to make money. Figuring out how to account for the money they make can be a challenge. Thankfully, the IRS has provided guidance on how to handle accounting for the money business owners make.

Here is the guidance:

The procedures for compensating yourself for your efforts in carrying on a trade or business will depend on the type of business structure you elect. Below are topics that frequently arise when new business owners ask the Internal Revenue Service questions about paying themselves.


Corporate officers

An officer of a corporation is generally an employee, but an officer who performs no services or only minor services, and who neither receives nor is entitled to receive any pay, is not considered an employee. Refer to “Who Are Employees?” in Publication 15-A, Employer’s Supplemental Tax Guide (PDF).

Partners

Partners are not employees and should not be issued a Form W-2 in lieu of Form 1065, Schedule K-1, for distributions or guaranteed payments from the partnership. Refer to partnerships for more information.

Dividend distributions

Any distribution to shareholders from earnings and profits is generally a dividend. However, a distribution is not a taxable dividend if it is a return of capital to the shareholder. Most distributions are in money, but they may also be in stock or other property. For information on shareholder reporting of dividends and other distributions, refer to Publication 550, Investment Income and Expenses.

Form 1099-MISC or Form W-2

You cannot designate a worker, including yourself, as an employee or independent contractor solely by the issuance of Form W-2 or Form 1099-MISC. It does not matter whether the person works full time or part time. You use Form 1099-MISC, Miscellaneous Income (PDF) to report payments to others who are not your employees. You use Form W-2 to report wages, car allowance, and other compensation for employees.

Treating employees as nonemployees

You will be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold them because you treat an employee as a nonemployee, including yourself if you are a corporate officer, and you may be liable for a  trust fund recovery penalty. Refer toPublication 15, Circular E, Employer’s Tax Guide for details about the trust fund recovery penalty orIndependent Contractor for more information on employee classification.

Shareholder loan or officer’s compensation?

A loan by a corporation to a corporate officer should include the characteristics of a loan made at arm’s length. That is, there should be a contract with a stated interest rate, a specified length of time for repayment, and a consequence for failure to repay the loan. Collateral would also be an indication of a loan. A below-market loan is a loan which provides for no interest or interest at a rate below the federal rate that applies. If a corporation issues you, as a shareholder or an employee, a below-market loan, the lender’s payment to the borrower is treated as a gift, dividend, contribution to capital, payment of wages, or other payment, depending on the substance of the transaction.

See “Below-market interest rate loans” under Employees’ Pay / Kinds of Pay / Loans or Advances in Publication 535, Business Expenses for more information.

Reasonable compensation

Because an officer of a corporation is generally an employee with wages subject to withholding, corporate officers may question what is considered reasonable compensation for the efforts they contribute to conducting their trade or business. Wages paid to you as an officer of a corporation should generally be commensurate with your duties. Refer to “Employee’s Pay, Tests for Deducting Pay” in Publication 535, Business Expenses for more information. Public libraries may have reference sources that provide averages of compensation paid for various types of services. The Internal Revenue Service may determine that adjustments must be made to the income and expenses of tax returns for both the corporation and an individual shareholder if the officer is substantially underpaid for services provided.

Draw account

If you are a sole proprietor  or partner in a partnership, the money or other forms of payment you take from your business should be accounted for in a draw account. This helps you know what amount of benefits you have taken from the business during the year. You cannot deduct the sole proprietor s own salary or any personal withdrawals made from the business.

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An Excerpt from TaxAssurances’ Book for Small Business

do-it-with-passionWhether they are starting a new business or expanding an existing business, entrepreneurs of all strips need to have passion and drive for what they are doing. They need passion and drive because the road for any entrepreneur is littered with challenges and hurdles that have to be overcome on a constant basis.

Passion and drive is reflected in the time and energy that is put in the little details in starting and running a business. It is reflected in the financial commitment that owners put into the business. It is reflected in the sometimes lonely journey and effort that a business owner endures to make their business a success.

Deliveries will be late or missed. Employees will be late or quit. Clients will find a million and one reasons not to pay you on time or if the entrepreneur is really luck, not at all. And none of this will be in the original or revised business plan the entrepreneur may or may not have done. Business owners need that passion and drive because that is what is going to move them forward during the tough times.

Owners will want to cry about any one of the challenges they face, but the problem will still be there when the crying is over and a solution still needs to be found. Passion and drive for what they do during those gut wrenching times will propel them forward and help them overcome those challenges.

Passion and drive will help them devise solutions and responses that keep the business going. The challenges may spark a creative bent that they otherwise might not have used. And in really breakthrough moments, it will put the business on a much better trajectory then before the challenge first appeared.

 

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Is An Employee Paid in Cash Worth Going to Jail For?

Michael-GrimmHere is a recent story of a US Congressman who lost his seat and is going to jail for his employees. Here are the details that stand out:

The indictment accused him of underreporting more than $1 million in wages and receipts to evade payroll, income and sales taxes, partly by paying immigrant workers, some of them in the country illegally, in cash.

Sentencing was scheduled for June 8. Prosecutors said a range of 24 to 30 months in prison would be appropriate, while the defense estimated the appropriate sentence as between 12 and 18 months.”

Here is the rest of the story.

In my upcoming book focused on Small Business and Accounting, I explain how to avoid this.

 

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Starting a Business

408611g3ehbfo67Are you dreaming about starting a business? Many people do. Starting a new business is exciting and demanding. Anyone that chooses to take on the hurdles of doing it have to be willing to juggle any number of opportunities and challenges at the same time. If it’s done right however, it can be very rewarding and gratifying.

Surround the Business with a Positive Environment

For starters, aspiring entrepreneurs want to make sure they keep themselves in a positive and encouraging environment. That environment doesn’t simply include the space they work out of, however. It includes family, friends, business partners and employees, just to name a few. They need to support them and the business.

It also includes healthy, positive living. Diet, exercise and personal time are part of that. This is important because when difficulties do come up, that environment needs to support the efforts of the business owner. Without it, it’s just more headaches for them to deal with.

Be Passionate About the Business

That environment goes hand in hand with the owners’ passion for what they’re doing. If owners are not passionate, then they may simply give up on everything at the first sign of problems.

For those aspiring entrepreneurs that are unsure about what they’re passionate about, figuring it out can be simple. I’ve found that if they simply ask themselves honestly, “What would I do every day if I had $10 million?” They would know what they’re passionate about. And again, that passion will carry them through the tough times.

Dealing With the Tough Times

Those tough times for many owners come very early on in the process. What or who is, the right financing, the right marketing plan, the best employees, the ideal clients. Have I saved enough money to make this work long term? These are just some of the challenges involved with starting a business. As the experience evolves, the triumphs and setbacks present new challenges that have to be handled.

So if you’re considering starting a business make sure you create the best environment for the business to flourish. That includes being in a positive and passionate space. It involves knowing your business backwards and forwards and it means being prepared to change along with the circumstances in order to keep the business going. Making all of this work harmoniously will lead to long-term success for the owner and the business.

 

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