Starting business means lots of paperwork

By Anne Mitchell
The (Fort Myers, Fla.) News-Press

If you're thinking about being your own boss, you're not alone. More and more people want to cut those corporate apron strings.

But first consider the pros and cons of self-employment.

"The plus side," said Bob Bloedel, a Fort Myers, Fla., businessman, "is that you get to make all the decisions.

"The bad side is that you get to make all the decisions."

The National Endowment for Financial Education in Englewood, Colo., says that seven in 100 people work for themselves — some out of necessity, others by choice, some for a short time, others for the long haul.

Either way, they should understand the tax considerations before becoming fully independent, according to William L. Anthes, NEFE's president and CEO.

And, says Bloedel, who runs the Internet business Funny Undies from his home, they should be prepared for a lot of paperwork if they are to set themselves up properly.

"I have started six different companies from scratch," said Bloedel, who retired to Florida a few years ago. Regardless, he still had to do all the licenses and other paperwork again.

"If you think your business is going to turn into something, you need to have some form of corporate identity, and you need an attorney to set it up. It's not expensive," he said. "If you are operating out of your home, you need a (city or county) permit and there are rules and regulations you have to follow."

From a tax standpoint, self-employment is a case of good and bad news, said Anthes.

"On the one hand, you'll face additional taxes and paperwork you don't have as an employee. On the other hand, you can offset much and maybe all of those additional taxes if you understand the deductions available, keep accurate records and generally make effective financial planning decisions," he said.

The home office can provide valuable tax deductions, but claiming is "complicated and fraught with potential tax traps," Anthes said.

To claim a home office, the space must be used regularly and exclusively for your work. It can be traditional office space or part of a larger room in your home.

Anthes said if your home office passes the test, you can take a variety of deductions based on the total of your home's square footage that is occupied by the office.

If your office uses 10 percent of the total square footage, you can deduct 10 percent of expenses such as your home's real estate taxes, insurance, utilities, mortgage interest or rent payment and certain repairs and improvements.

Once you have your paperwork in order, there's still at least one more thing to consider before becoming self-employed: your personality.

"If you are not a decision-maker, if you are a sit-on-the-fence type of person, it's an awful uphill battle," Bloedel said.