I’ve been sick as a dog this past week. I started to feel sick while writing about work-life balance and a few hours later I was in bed with the flu and all the fun it brings along with it. The doctor confirmed my suspicions the following morning. I’m back to work today, but spent the better part of last week in bed, certainly uninterested in touching a computer.

Now that 2007 has come to a close, it’s time to start thinking about taxes. Your own taxes are enough; nobody wants to have to worry about going through the process twice. If you use a business to house all your side projects, that’s exactly what you get: two sets of books, and two tax returns. The advantages however, far outweigh the drawbacks.

Separate Books and Accounts
It’s very difficult to see how successful a project is when you pool that money into your personal accounts. It will make tax time a nightmare. Sorting through receipts trying to figure out what was a business expense and what wasn’t would NOT be fun. When your books and accounts are separate, none of this is an issue as your business is a separate legal entity. You can think of the business as a really dumb friend that needs you to keep an eye on his account balances and checkbook register for him. This is a requirement in many jurisdictions, and even where it’s not it’s just plain stupid to not do things this way.

Sorting Mail is Easier
In the interest of keeping overhead low I work from home, and so should you. BKE’s legal address is the same as my home address. For true separation I should use a PO box, but given the kind of mail I receive, I manage well like this. When I get the mail, the first thing I do is sort it into three piles. Everything addressed to Brad Kelly goes in one pile, everything addressed to Brad Kelly Enterprises goes into another, and advertisements go into the trash. Except for pizza coupons. I like pizza.

Income Splitting and Lower Corporate Tax Rates
LLCs, Partnerships and the like use pass-through taxation by default. Every profit and loss flows through to the owner’s personal return, even money that’s left in the company as capital for expenses. While this makes tax time easier, it can also bump you into a higher tax bracket, increasing your overall tax bill.

If you file IRS Form 8832, you can elect to be taxed as a corporation. This forces a separate return for the business and allows you to decide how much money to leave behind in the company and how much to give to yourself as personal income. Any money left in the company (they call this retained earnings) is taxed at the corporate rate, which is 15% on the first $50k, and 25% on the first $75k. This can save you money because anyone earning over roughly $30k personally will be taxed at 25%.

It’s Easy to See How Much You Made Personally
Instead of taking “owners draw” or anything like that, I run a payroll and issue myself a check or direct deposit. You operate like any other employee would, and it’s nearly impossible to pull the kind of shenanigans that interest the IRS. You also get a W2 at the end of the year, making it a breeze when you do your own taxes.

Avoid Self-Employment and Estimated Taxes
Self-employed people have to pay “double” the medicare and social security tax because usually your employer pays half. Many also have to make quarterly estimated tax payments. When you tax your company separately and issue yourself payroll checks, all the tax withdrawals are taken care of automatically by your payroll outsourcing company. It’s just like having a job somewhere, no surprises.

Save for Retirement
When you form a business to govern your projects and websites, you can create a a 401k program. Sharebuilder is one place that comes to mind where you can create a 1-person 401k program. Not only does this allow you to save for your retirement tax-deferred, but you dictate the program specifics and employer match levels, something any other 401k can’t offer.

Access to Dropship Suppliers and Wholesale Prices
Most dropshippers, like those found in the Drop Ship Source Directory and other wholesalers won’t even talk to you without a state tax ID number. When you create a company, you can sign up for a sales tax license. This opens a lot of doors to some valuable business relationships that would otherwise be unavailable to you.

Keep Your SSN Private
For anyone to send you a check online, they need to know your contact and tax information. There is always a field for your social security number. Every business should have a federal EIN, which acts as your company’s social security number. Since my company has accounts with CafePress and Google and the like, rather than me, they all have the company’s federal EIN instead of my personal SSN.

Once BKE was created, I just went around and changed all the account names and SSN information to reflect the company rather than myself.

I wasn’t completely idle over my Christmas break, and was able to launch tshirtreviewblog.com today. It feels good to have accomplished that before heading back to work tomorrow, that was really my only BKE-related goal over this break. I didn’t have that much left to do, with most of the work finished in mid-December.

Instead of verbally telling someone “I saw the coolest shirt the other day…” and not being able to tell them where I found it, I can now document all the unique designs I come across and hopefully help someone find their next favorite tee in the process. If you have a chance, take a look and let me know what you think.

As always, this is an experiment and could fall flat on its face, but if it does, you’ve got a front-row seat. I noticed there were several tshirt blogs out there, but many don’t seem to be monetizing their traffic like they could. Some others used affiliate links so heavily that you can’t trust anything the writer has to say. Down the road, tshirtreviewblog.com will make use of affiliate traffic, but I think maintaining editorial integrity is important. I’ll try a number of methods to generate income with tshirtreviewblog.com, and I’ll report what works and what doesn’t.

The most important thing, I think, is that this is something I’m genuinely interested in, and would do for reasons other than money. I think that’s an important test that a lot of people don’t put their projects through. It’s not going to be fun, and it’s going to seem like a chore if you’re writing about something just because it’s a popular or profitable topic.

In the past, BKE has made all its income from eBay, and this will be the first step in diversifying that a bit. Stay tuned.

Happy new year! Hopefully everybody had a restful Christmas season and safe new year’s celebrations. I’ve been off work since the Friday before xmas, and have been fortunate to have the opportunity to spend a lot of time with family and friends. I think this time of year brings the opportunity to examine your work-life balance and set goals to improve it over the next year.

With all the free time, it was awfully tempting to sit in front of the computer for hours on end working on various BKE projects, but what opportunities would I have lost with family doing that? I think I made the right decision to completely abstain from the computer for a little while.

I’ll admit, I couldn’t resist checking in from time to time, but I’ve got quite a bit of feed reading and whatnot to catch up on now. I’ve had the opportunity to rediscover some things that get neglected when you spend all day on the computer (including Seinfeld seasons 8 and 9) and other offline activities that I can share with family and friends.

How do you balance time working on your projects and business ventures with home and family life?