The Government Wants You to Become an Entrepreneur
Tax law is designed to work for business owners.
It’s been a little over a year since the beginning of the coronavirus pandemic and so much has changed in such a short period. More than four million businesses have closed in the last nine months, and as of January, more than 10 million people in the United States are still unemployed. The biggest question for many is, “What do I do now?" The good news is, there’s one solution that the government favors: entrepreneurship.
The government wants you to create jobs
The government favors entrepreneurship, but why? One of the biggest reasons is job creation. When the government wants to encourage specific behavior, they can either do so by force or by policy. One of the ways this is done is through the policy of the tax law. So, rather than spending a lot of money trying to create jobs, it’s a whole lot cheaper for the government to provide tax benefits that encourage business owners to create them. Government can get even more specific in the types of jobs they want the market to create by giving specific tax breaks for farming, green energy and more. For example, during the pandemic the CARES Act encouraged employers to keep employees on their payroll with the Employee Retention Credit. With the refundable tax credit, 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by Covid-19, helped reduce the number of jobs lost due to the pandemic.
U.S. tax law is dedicated to giving businesses breaks
Believe it or not, but only about 30 of the 5,800 pages of U.S. tax law are devoted to raising your taxes. The remaining 5,770 pages are dedicated to reducing your taxes. However, most of these opportunities are limited to business owners and investors. Taking the leap to become an entrepreneur is a lot less intimidating when you understand that the government wants you to own a business and is more than willing to share the cost of startup and operation. As a thank you for contributing to the economy, the government offers you hundreds of deductions and incentives that the average W-2 worker cannot take. For example, while many people have worked from home during the pandemic, only business owners or independent contractors can take the home office deduction which includes utilities, mortgage interest, property taxes and more.
Getting started the right way
If you’re ready to take the next step into entrepreneurship, there are a few important steps you should take to set yourself up for success. First, set up a business entity, specifically an S-Corp, C-Corp or limited liability company, as these entities will significantly increase your tax savings. Second, you can deduct almost everything legally including travel, business meals (thanks to current coronavirus relief, you can deduct 100% of expenses through 2022) and much more with proper documentation. Finally, find a strong team. A bookkeeper and an accountant are critical team members all business owners need. A bookkeeper will keep your records up to date and accurate while an accountant will use those records for tax purposes. A great accountant will know the tax law and understand how to use it to legally reduce your taxes.
The government wants you to become an entrepreneur, so seize the moment to change your life for the better. In a post-pandemic economy, entrepreneurship could be the key to a more stable and successful life.
Entrepreneur Leadership Network Contributor
Tom Wheelwright is a leading tax and wealth expert, CPA, and author of "Tax-Free Wealth." As CEO of WealthAbility®, Wheelwright helps entrepreneurs and investors build wealth through practical strategies that permanently reduce taxes.