Small Business Reality Check: The Myth of ‘Double Taxation’

Being financially smart today means more than simply living within your means, paying your bills on time, and setting money aside for retirement — it requires some foresight into the changing nature of the global economy. After all, the primary reason personal-finance education is so important today is that we can no longer count on big, paternalistic corporations to take care of us from cradle to grave. We each, individually, are responsible for our own long-term financial well being, and this fact has led many Americans to start their own businesses.

It’s a well known fact that most small businesses fail. But statistics citing a “failure rate” as high as 90% can be a little misleading. After all, if you start a business, run it successfully for four years, and then decide to move on to something new, was your business really a “failure”? And besides, innovations like eBay and Google AdWords have made running mini-businesses for supplemental income more practical (and lucrative) than ever. Just as the big businesses have gotten smaller, small businesses have become micro-businesses, meaning the financial commitment required to get them running has been reduced to nearly zero, and therefore, the risk of “failure” has been greatly diminished.

But this doesn’t mean that planning isn’t important. In fact, the more prepared you are with your business (i.e. writing a business plan), the greater the chances are for your ultimate success. But if you just want to start selling on eBay or build affiliate Web sites powered by AdWords, and you don’t plan on quitting your full-time job, then the worst thing you can suffer from is “analysis paralysis” — just get started and learn as you go: What do you have to lose?

In short order, however, you will want to make the decision to incorporate or use another”good” business entity such as an LLC or limited partnership. The “bad” entities include sole proprietorships and general partnerships. There are many resources outlining the benefits of incorporating, most especially the Rich Dad series of books, but for this article, we will just briefly explore the tax implications, which are often overlooked and/or misunderstood.

First, it’s important to note that when you incorporate, your business becomes legally distinct from you. It has its own equivalent of a Social Security Number (an EIN; Employer Identification Number) and it has to file its own separate tax return. The current IRS code taxes corporate profits at 15% for the first $50,000, and also charges a 15% (maximum rate, based on the recipient’s income) for dividends. In other words, if you wanted to take $50,000 out of your business, it would be taxed twice — once as profit, and a second time as a dividend. It is this double taxation that leads many people to avoid incorporating.

But this view leaves out the most important tax of all for most moderate-income people: FICA (Social Security and Medicare). Let’s say you earn $40,000 working a full-time job, and earn another $20,000 through your Internet business. If you weren’t incorporated (i.e. you ran your business as a sole proprietorship), the effective income tax rate on your $20,000 in business profits would be 24.7%. On top of this, you would pay 15.3% in FICA taxes — 7.65% as the employer, and 7.65% as the employee. Therefore, your total tax rate would be 40%!

By contrast, if your business profits were sheltered under a corporation, you would pay a tax rate of just 15%. This would leave you with $17,000 after taxes to pay yourself a dividend, which would be taxed at 15% for another $2,550 in taxes. This would total $5,550 in taxes, or an effective tax rate of just 27.7% — instead of the 40% a sole proprietor would pay.

What about FICA? It isn’t charged on corporate profits, nor dividends. So in this case, the “double taxation” of corporate profits and dividends is 12.3 percentage points less (over 30% less in “real terms”).

Of course, this all depends on your situation — if you earn more or less income at your job or with your business, your results may vary. But the main message is: Get informed! In this particular case, incorporation could have saved the business owner nearly $2,500 in a single year — and these kind of savings are what can help small businesses be in the 10% of companies that succeed.

As the Stock Market Reaches New Highs – What About Gold and Silver as Investments?

The stock market reached an all-time high on Thursday, and then came back on Friday and went even higher. Whenever the market reaches new highs, there are always people who become wary of a potential “correction” — which is essentially a euphemism for a crash! But even if the sky isn’t falling on these Chicken Littles, it is always wise to have a diverse portfolio of more than just stocks, bonds, and mutual funds. Have you considered hard assets?

The price of gold has climbed from $300 an ounce to more than $650 an ounce in the past five years. Most financial advisors agree that holding a little gold in your portfolio is a good hedge, at worst, and possibly a great investment, as the U.S. dollar continues to show weakness. But does this mean you have to go out and buy actual bars of gold? Not anymore!

StreetTRACKS Gold Shares is an exchange-traded fund (ETF) based on gold. The fund itself owns physical gold, so when you buy shares of it — just like a stock — you are making a claim on the fund’s gold. As it is now, one share of StreetTRACKS Gold Shares (ticker: GLD) is equal to 1/10 of an ounce of gold.

But silver may be an even better place for investors to put a little of their money. This is because there is one tremendously bullish indicator in the silver market: The concentrated net-short position is equal to over 130 days of global production.

Confused yet? What this means is that there is a group of four or fewer silver traders (“concentrated”) who are selling silver futures contracts equal to the number of ounces of silver produced in the world on an average day x 130. By contrast, gold’s concentrated short position is equal to just forty-five days of global production, and crude oil’s is just 1.4 days! The larger that concentrated short position relative to days of global production, the more “paper” pressure being put on the hard asset — and according to most experts, eventually that paper is going to rip!

For those unfamiliar with futures: A futures contract is an obligation to deliver a specific commodity at a stated price and on a stated date — or the sellers can simply buy an offsetting contract to cancel out their positions. This concentration of silver sellers has existed for years and they have not been “making delivery” of the silver — they’ve been buying offsetting contracts and renewing their sell positions, even as the price of silver has doubled in the past two years (meaning heavy losses for the concentrated shorts). Most silver analysts think that, eventually, these short sellers are going to have to throw in the towel and not renew their positions — and when this happens, the price of silver should skyrocket, since it will no longer have the downward pressure of the concentrated short sellers.

So how can you buy silver? Again, you don’t need to buy bullion or coins, and you definitely should stay away from the futures market! The good news is that there is a mutual fund that holds physical silver, much like the gold ETF discussed above.

It’s important to note that investments in hard assets can lose money! The gold price in 1980 reached over $800 an ounce — it still hasn’t gotten that high since! Even this bullish silver scenario could turn out the other way if the short sellers are smarter than the rest of the market. But most investment advisors agree that holding a portion — perhaps just 10% — of your total assets in hard assets is a smart idea. And thanks to advances in mutual funds, ETFs, and the Internet, it’s never been easier to do!

Investing on a Budget: How to Get Started in the Stock Market without a lot of Money

In the not-so-distant past, stock trades cost $50 or more. Then Charles Schwab introduced the concept of “discount brokerage,” which forced the big brokers on Wall Street to lower their prices. Finally, the Internet made trading much easier and less expensive, and online brokers like E-Trade and Ameritrade competed to deliver even lower prices.

But would you believe you can now trade stocks for $0?

That’s right, zecco.com has been offering $0 trades for months — but just recently, they dropped the $2,500 account minimum, meaning that now you can open an account with as little as $50 (or less)!

So what’s the catch? Well, you’re limited to ten trades a day and forty per month — after that, trades are $3.50 (which is still a very low price). But more importantly, zecco is an ultra-discount broker — you will not be able to rely on professional assistance when making your trades. Price is not the only thing to consider, as Barron’s magazine rated OptionsXpress the top online discount broker, even though it charges $14.95 for trades, which is well above the industry average. If customer service is important to you, zecco may not be your best choice.

However, if you are trading on a budget, high commissions can really cut into your profits. For example, if your online broker charges you $10 for commission, and you buy ten shares of a $50 stock, your total cost is $510. If the stock goes up by 10% to $55 per share, you can sell your shares for $550, but you have to pay another $10 commission for the sale as well, reducing your net proceeds to $540. Instead of buying for $500 and selling for $550 (a $50 or 10% profit), you’ve bought for $510 and sold for $540 (a $30 or only 6% profit). This means 40% of your profits have been eaten up by commissions — yikes!

But if you’re not ready to start trading any real money right now, that doesn’t mean you can’t get started in the stock market. In the past year or so, several “social networking” sites for aspiring stock traders have sprung up all over the Web. These sites work like MySpace, but in addition to making “friends,” you can buy and sell stocks with fantasy money — it’s a lot of fun, even for real-life investors.

Some of the best social-networking / fantasy investing Web sites are listed below:

• BullPoo.com
• Feeling Bullish
• Social Picks
• StockPikr
• Many more!

Stock-market investing is not for everyone — some people are better off buying mutual funds or exchange-traded index funds. But one of the knocks against self-directed stock-investing has always been the commissions. Now with $0 trades, that’s no longer a factor, and everyone with the inclination to make a buck on Wall Street can do so irrespective of their financial status.

6 Major Flaws in iPhone. Will Consumers Still Spend the Money?

Is the iPhone the smartest phone for the average consumer’s money?

The iPhone is already getting positive reviews. But most reviewers so far, while in awe of the trademark Apple elegance and beauty, also have some serious concerns. What remains unknown at this point is this: Once the first wave of hype buying cycles through, will the iPhone’s 6 major flaws be enough to seriously hurt sales?

Flaw #1: It only works with one carrier. Sure, AT&T is now the biggest carrier in the U.S. but this does create real limitations to iPhone sales right out of the gate. First, According to some estimates, over 30% of all cell phone users in the U.S. are locked into plans with other carriers for at least one more year. This puts a huge limitation on the number of people who even consider it a realistic option to consider buying an iPhone. Second, no carrier has perfect coverage in all areas, and there are locations where customers know from experience they get better service from another carrier. Third, this removes all pricing competition for iPhone price plans. Most will be paying between $80 and $120 per month for the iPhone, plus the initial start up costs total around $2000 for a two year contract. While this is in the range of comparable products, increased competition will likely continue to bring down the prices plans of other phones, while AT&T has exclusive rights for a long, long time. And fourth, a big enough negative to deserve its very own Flaw:

Flaw #2: The Edge isn’t. AT&T’s “Edge” internet technology, which is the only one the iPhone can use, is considerably slower than other carriers, and even slower than some other technologies offered by AT&T. This problem is exacerbated by Apple’s cool web browser that displays the whole page, creating slower download time. So, while the iPhone does have WiFi, a very nice feature, when you aren’t in a WiFi area, be prepared for some mighty slow internet.

Flaw #3: A salty battery. For all of the iPhone’s beauty, you have to send it in every year or two to get a new battery. Perhaps one day a future-thinking company will invent a way for people to actually replace their own batteries on their cell phones, but until that day- oh wait, that’s standard procedure. Well, not on the iPhone, as it continues the great Apple tradition of non-replaceable batteries. Who is looking forward to being without their mobile phone for a few days or longer?

Flaw #4: Lower than expected sound quality. Sure, when using the famous white earphones- this time with a pinch tube to fade out and pause the music and answer the phone- the sound is iPod quality. But when used as a phone, early reports are that it actually has some pretty average (meaning noticeably worse than the competition) sound quality. This isn’t about audiophile pickiness, it’s about being able to comfortably understand the person you are talking to, even in noisier environments- one of the main purposes of a cell phone, which under all the cool gadgetry, this is first and foremost supposed to be.

Flaw #5 No GPS. Ouch. These days, it’s hard to buy a watch, a key chain, even a cereal box that doesn’t come with built in GPS. Most smart phones now have it. While the iPhone has some cool faux GPS features, like using Google Maps to help guide you about where to go- as long as you always tell it where you ARE, nothing can really replace the ever-growing list of very handy, practical and in some cases vital features offered by GPS.

Flaw #6: No memory card slot for expandable memory. Yes, it’s a slim phone. Very slender and sleek. We are all seriously impressed. And we can’t wait to fill it up to its max capacity and – oh wait. In no time it uses up it’s max capacity. With no slot for a memory card. Well, on the bright side, maybe that will help the battery last a few days longer before I have to send it in.

In short, the iPhone is undeniably a very cool phone. But as the hype fever begins to settle and people start asking real questions about if this cell phone is the smartest use of their hard earned money, these 6 flaws just may prove to have a much greater impact on sales than most people, understandably blinded by all the glitzy hype, are currently expecting.

More Resources:

• Ready for an IPhone? Tips to End Your Existing Cell Contract
• Beware the Magical iPhone
• The IPhone Could Cost You Nearly $6,000

HUD Home Buying: Part Three

Part three of a four part guide to HUD Home Buying

Finding the Right HUD Home for You

There are some fundamental differences between HUD homes and homes on the private market that you should be aware of when going into the process. Since HUD homes are usually foreclosed and are built in a unique manner, they are going to be sold “as-is”. That is why many people like to look for HUD homes in their area. When you buy a home that has had little work done to it, it can become quite a fixer-up opportunity. Even if you don’t plan on fixing up a little bit, you can still take advantage of the great deal afforded by purchasing a home through HUD.

Chances are, there is a HUD home that is perfect for you. If you know there is a perfect home out there, the trick is to find it. How can you do this? You might want to take a chance and use a real estate agent to help you out. Their knowledge and connections can be quite a beneficial factor for your home search. In order for the real estate agent to be able to help you, you are going to have to provide some information to them. Communication is absolutely essential in finding the perfect home. Let the real estate agent know what sort of things are important to you. Would you like a short commute? Do you value a large home or a smaller, nicer one?

Sit down with you real estate agent and share a list of the things that you want. Real estate agents are very organized and they are likely to have a similar list of properties with things that match your wants and wishes. In addition to using the services of your real estate agent, you might also want to use the resources available on the internet that might help you find the perfect home. A great place to start is the U.S. Government HUD website  where you can find a listing of the available homes in your area.

You must be prepared for the type of homes that you will see. That’s another major difference in the private sector against buying a home through the government. Most of these homes will need a bit of improvement, but they will be in generally good condition. They are not perfect properties, but they do have plenty of potential. You will want to get all of the information that you can possibly get in regards to the home. The government is required to give you all of the information that you ask for about a home, so make sure to take full advantage of that.

If you do run into a home through HUD that you are interested in and you feel like you might not have enough money to fix it up, then there is help available. HUD realizes that most of its homes fall into the fixer-upper category and they also realize that many people don’t have a few thousand dollars lying around with which to make those repairs. With that in mind, there is a program for people who need a little cash for that purpose. The 203(k) programs enables people to borrow money and make these huge improvements. The money borrowed can be repaid as a part of the home mortgage, making it easier to keep things in order.

Personal Finance Haikus

The poetry of financial drama.

MakeYourNut.com  is holding a personal finance haiku contest.  The deadline is June 15 th 2007.  They’ve already received some submissions, including:

New card came in mail
This one has RFID
I don’t want it now

My friend buys work lunch
Plus three sodas each workday
That’s 2000 a year , wow

The Chinese store  has
Lots of good food and fresh things
For much less money

Pay your loans on time
Sallie Mae has no mercy
They know where you live

Here at SMD, we thought we’d give it a try, and have entered these four personal finance haiku poems into the competition.

As you may remember from school, a true haiku has 3 lines, 5 syllables, 7 syllables, then 5 syllables.  They are from the Japanese Zen tradition and are usually about nature, spirit and moments of awakening.

However, personal finance haikus will most likely deviate a bit from that tradition…   If you enjoy these haikus, you might want to check out the famous  “Spam Haikus“,   Quite funny.  Of course, these are about the food spam, made of a strange ham-like substance purported to come from an animal source, not the internet spam, which would also be a great haiku thread.   If you do submit any, please send us a copy. We’d love to see it.

Here are our entries. Don’t forget to go vote for them if you like them.

#1:

Curse you credit cards!
You promised me priceless dreams
Now only nightmares

#2:

Like a hot desert
After long harsh rainless months
Bank account is dry.

#3:

Dreaded day arrived
“No payments for one whole year!”
Where did the year go?

#4:

“Dad, loan me Twenty?”
“You mean you will pay it back”?
“Um, can’t hear. iPod.”

I’ll post an update when the voting starts. Contest details are here.

Things to Beware of With Payday Loans

There’s an eye-opening and well researched piece on payday loans on an interesting site called Wake up U.S. The post is called Internet PayDay Loans are hazardous to your sanity and bank account and gives some stern warnings about the dangers of payday loans and calls into question the laws that allow these companies to operate and the slightly shady tactics that they use.

In a few moments, in some cases longer, you will receive an approval in your email inbox. Within a day or two, sometimes three, you will see that this company deposited the amount requested into your checking account. The first payment on this loan will usually be due within a week or two, depending on the company.

However, and this is where it starts to get ugly, monetarily speaking. The first payment due is just the interest and fees. The second payment due is also just for the interest and fees, and on and on it goes. Lets say you applied for three hundred dollars. If you do not completely repay this in the first week, this three hundred dollars can turn into three thousand dollars.

I believe first and foremost in personal responsibility but the brutal terms that allow that kind of escalation of charges probably could benefit from some legal confinement.

The article goes in to mention that each state in the U.S. has different laws for these companies and with the Internet providing a massive shell game opportunity, the net result is pretty much that a payday loan company can get away with almost anything (including automatically withdrawing money from a client’s bank account!)

All I can suggest is to check with the Better Business Bureau to find out any possible patterns of complaints against any payday loan or cash advance companies that you are wanting to do business with.

High Cost Payday Lenders Advertise Everywhere from the BBB website which goes into some more detail about the practices of these lenders and offers tips for consumers.

The Benefits of Affiliate Marketing

Affiliate marketing is the single fastest growth industry on the Internet. Yet many people go into it without a solid recipe for success. Indeed, many look to earn extra income with affiliate marketing with no real plan, and that can severely hamper their efforts at becoming successful at it.

Make no mistake, although affiliate marketing can be an easy and fun way to earn additional income, it is work, and just like any other job, requires effort, perseverance, and above all, a clear line of sight from start to finish line.

Things like setting up your home office properly, getting some know-how, setting realistic goals, making connections, and investing in your business will not only ensure that you have a leg-up on your competition, but it will also ensure you are firmly standing head and shoulders above them.

You Get to Work at Home

Perhaps the most important first step you can take to becoming a professional affiliate marketer is to set up your home base – that little home office you’ve always dreamed about!

There are many good articles on the internet about ergonomic design, and with good reason. Anyone who is going to be spending a large amount of time on their computers needs a space that promotes good posture, positive environments, and takes care of safety issues revolving around the office workspace.

The best place to start might be to head down to your local Home Depot and touch base with a professional sales representative. They are trained to show you how to set up a first-rate ergonomic office while saving you some serious cash.

Ergonomics is the science behind preventing office workplace injuries, and office designers now make tables, chairs, and desktop accessories that reduce stress on your back, limbs, wrists, and tendons, and reduce stress injuries such as carpal tunnel syndrome which can occur from long hours of doing small repetitive tasks.

You’ll want to start with an ergonomically designed desk that puts everything within easy reach, a good computer with a screen that won’t hurt your eyes, non-glaring lamps placed far enough away that your eyes won’t be soaking in light while you are trying to work on the computer screen, and a chair that is comfortable and promotes circulation to your legs and rest of your body.

Of course, having the greatest home office in the world won’t matter if you don’t take the next step to becoming a successful affiliate marketer: getting some good, professional training.

Simple Learning Curve

Nobody goes onto a worksite cold. You can’t walk into a restaurant and expect to become the head chef just because you dressed like one that morning. And no construction company in the world is going to put you in charge just because you want the extra money but lack any real training.

The trick, then, is getting some professional training and learning how to become a professional affiliate marketer.

The first step in this road to success is to find a professional affiliate marketer and see what they can do to help you get on your feet and get moving. Thankfully, there are a few affiliate marketing pros out there who supplement their income by fulfilling another dream for many of them: being able to teach their trade to other enthusiastic marketers and passing their collective knowledge on to others.

In fact, simply typing “Affiliate Marketing Training” into www.yahoo.com or some other search engine will find dozens and dozens of sites promoting quality affiliate marketing conferences that you can attend.

One of affiliate marketing’s brightest stars and biggest success stories is James Martell, and chances are pretty good that if you’ve looked into affiliate marketing at all you’ve seen his name pop up more than once. His downloadable home-study course and twice monthly audio newsletter for students of his program make him the good place to start looking for a great course and learning the inner workings of affiliate marketing.

Become a student of the business. Start by setting some realistic income goals and working to achieve them.

Reachable Goals with Consistant Effort

One problem with some affiliate marketers is that many tend to overshoot both their skills and their plans by setting unrealistic income goals and becoming disenchanted when they are unable to attain them.

Certainly a goal of $5,000 a month is attainable, but the first time affiliate marketer is most likely not going to make that kind of money when they step into the ring for the first time.

Make no mistake; $5,000 dollars a month is a goal that can be achieved through affiliate marketing, but beginners should look for something more modest. Start small. Start with, “I’m going to earn an extra $50-$100 a day, by learning how to create my own great looking websites, that get free traffic from the search engines, by taking the time to learn how to do it, from someone who already does the same thing.”

As an income goal, it’s certainly achievable, and you would be doing yourself a favour by setting aside the extra time you will need to learn how to do things right, the first time. Like any skill, it takes time and experience before you really get good at what you are doing.

Part two of  “The Benefits of Affiliate Marketing” series in the next couple days.

Guest Author Bill Schnarr is a successful freelance writer and a seasoned work at home professional providing valuable insight and advice to those looking to start a homebased business at home. His numerous articles offer real-life tips and techniques for getting the most out of a homebased business.

Pros and Cons of Payday Loans

No matter what area of business you look at, each industry has its gray areas or topics that are constantly the seed of heated debates.  The payday loan industry is no exception. Payday loans and payday loan lenders have been a constant topic of debate among financial analysts, customers, lenders and the like.  Whether you approve of them or despise them, payday loans are at times a necessary evil for those who need quick cash and like anything else, have their pros and cons.

Payday loans can actually be very useful and help out tremendously in a financial time of need, when other financial institutions are not willing or able to accommodate a person’s financial need. Many times banks or credit unions will not approve loans for such small amounts  In addition, local financial institutions may also take into account a person’s credit or run their credit history to see if the person is eligible under their guidelines.

With the Internet becoming more of a standard in daily life than an exception, payday loan lenders have expanded their services online.  Many have websites that offer customers around the clock service and applications.  This allows the customer to be able to apply when their time allows it and allows for quicker information transfer and faster approvals.

A payday loan can be applied for and approved online in a very short amount of time.  This means that, once approved, money can be directly transferred to the banking account of the customer’s choice, with the added perk of not having to put up collateral as one might be required to do through other lenders.  This financial arrangement also helps for those who find it embarrassing to ask for financial assistance from friends or family.

While payday loans are an exceptional way to get money in a bind, they also have strings attached.  Due to lenders not performing a credit check or researching a person’s credit history, the lender takes on a financial liability when lending a customer money.  Because the lender is taking a risk, many will approve customers for payday loans that have a higher than average interest rate.

The higher rate is the lenders way of paying themselves back for taking on a customer, without checking their credit.  Most payday loan lenders do not perform credit checks.  Since the loans are viewed as short term loans, the lender takes on the liability of the borrower,  foregoes a credit check, and takes the financial risk of lending money to a customer.

Many payday loan lenders will also only approve customers up to a certain amount and in the grand scheme of things $500 or so is still considered a small loan amount.  It’s highly unlikely that one could find a payday loan lender that would be willing to take a risk of lending out a payday loan for a few thousand dollars.  This is where it’s important to evaluate your monthly income.  Before you take out a loan, check your pay schedules and make sure you’ll be paid again before your loan is due.  Otherwise you may have to make a partial payment and extend your loan, consequently adding more fees to your principal.

Payday loans are also not to be used as a budgeting plan or any sort of financial plan.  They should be used strictly as a means to an end.  These loans are intended to serve the needs that may occur in a short amount of time.  When used correctly and paid back on time, payday loans are a useful financial assistance tool.

What payday loans boil down to is personal responsibility.  The responsibility to repay the loan rests on the person taking out the loan.  As adults, people no longer have or need parents or others telling them what to do and how to get or spend money.  The fact of the matter is payday loans are a personal choice of the customer.  The payday loan industry is providing a service to a customer base that needs money from alternative sources, as traditional means of lending are not an option to them.

Review of Keyword Elite

[update] A new version of Keyword Elite has been released. You can get a sneak peak at Keyword Elite 2.0 on my Art of Money site.

After one month of constant use, I’ve posted a complete review of Keyword Elite on my Art of Money site.

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