          
          
                           SELF-EMPLOYED WEALTH
          
               One of the greatest strategies of all for
          financial success is a successful business.  If your
          business is profitable, that equity is the key to big
          money.  In fact, the miracle of equity is that it
          builds itself.  All you have to do is reinvest the
          profits successfully, and the value of the entity that
          made them will increase accordingly. 
               And even if your business never becomes
          profitable, it can help cut your tax bill.  Even if it
          never grows larger than a tiny "small" business, it can
          mean the difference between financial independence and
          life as a wage slave. 
               The 1986 tax reforms rubbed off some of the shine,
          but a small business is still one of the best tax
          shelters.  And, contrary to what you may have thought,
          starting your own enterprise doesn't require a radical
          departure from your current income. 
               There are two ways you can profit from business
          ownership while, in effect, keeping your present job: 
          independent contracting and a sideline business.
               A business of your own will help you realize a
          dream of financial independence.  To succeed all you
          need is a motivation to succeed, some no-nonsense
          planning, a competitive spirit, and the energy to
          achieve your goals. 
               In addition to equity, the most important
          component of self-employed wealth is that you are able
          to deduct many of your expenses. 
               A regular corporation allows you to turn many
          items you might normally buy out of your own pocket
          with after-tax dollars into deductible expenses by
          making them tax-free fringe benefits the business
          provides for its employee -- you.  You don't need to
          have any other employees to take advantage of
          incorporating. 
               If you do have employees, the tax treatment of
          employee benefits is another advantage of incorporating
          your business.  Tax rules recognize two general types
          of fringe benefits:  those that are identified
          specifically, and those that fall into broader
          categories.
               Specific benefit plans that are tax-free to
          employees and deductible by the employer are:
          
          * Accident and health insurance plans
          * Group-term life insurance up to $50,000
          * Prepaid legal services
          * Cafeteria or flexible-benefit plans
          * Vanpooling
          * Scholarships and fellowships
          * Dependent care assistance
          * Education assistance related to the employee's job
          
               Let's look at health insurance as an example of
          the advantage of incorporating.  Many people who leave
          an employer to go out on their own are shocked by the
          health premium they have to pay on their own.  A family
          plan with comprehensive coverage and dental benefits
          could cost you $400 a month or more.  By incorporating,
          you can have your company provide your insurance and
          deduct it as a business expense. 
               And the benefit does not count as income for your
          individual tax purposes.  The restrictions on these
          plans require that the benefits be available to a
          reasonable cross section of employees, as defined by
          various mathematical formulas in the tax code and IRS
          regulations.  Benefits will not be tax-free if they are
          available only to officers or highly compensated
          employees. 
               Obviously, this does not present a real problem to
          the one-employee corporation.  You must draft your
          benefit plans so that if you do hire permanent full-
          time employees in the future, they will be eligible for
          benefits. 
               For small-corporation employees, one of the
          biggest of these benefits is tax-deductible life
          insurance.  The most common way to get tax-deductible
          life insurance is through a group term insurance plan. 
          An employee receives the first $50,000 of coverage tax-
          free and must include as income only a percentage of
          the premium attributable to coverage over $50,000. 
               The taxable amount is determined by consulting an
          IRS table.  The coverage for each employee must be
          provided using a formula that takes account of factors
          such as age, years of service, compensation, and
          position in the company.  The employer must own the
          policy. 
               A drawback to these plans is that coverage usually
          ends when an employee retires, and some retired
          employees continue to need life insurance.  Coverage
          for retired employees is very expensive.
          
          When you own a business you may be able to...
          
          * turn "personal" expenses into tax-deductible dollars
          * split income among family members to avoid the
          effects of progressive tax rates 
          * have the business pay you in tax-free fringe benefits
          instead of a taxable salary 
          * deduct your vacation costs, under certain conditions 
          * write off your home office
          
          But be sure to...
          
          * weigh the costs of going it alone
          * appear independent
          * keep good business records
          * follow closely the rules on employing family members
          * consult experts before setting up complex benefit
          plans 
          * pay your estimated taxes each quarter
          
          General benefits
          
               Broad groups of benefits that receive tax
          advantages include the following:
          
          * No-additional-cost services are tax-free when
          provided by the employer (or another business under a
          reciprocal agreement with the employer), and the
          employer does not incur a substantial cost (including
          foregone revenue) in providing them.  An example might
          be allowing your waiters to have free lunches at your
          restaurant.  The service must be provided by the same
          line of business in which the employee works. 
          * Qualified employee discounts are tax-free when the
          discounts do not exceed the employer's gross profit
          margin on the product.  Discounts on services cannot
          exceed 20% of the price charged to other customers. 
          Employee discounts must be from the line of business in
          which the employee works.
          
          * Working condition fringes are property or services
          that would be deductible trade or business expenses if
          the employee paid for them himself.  Parking on or near
          the business premises is considered a working condition
          fringe benefit under the new law.  The employer can
          deduct it, and the employee needn't count it as taxable
          income.
          
          * De minimis fringes are tax-free if their value is so
          small that accounting for the benefits is unreasonable
          or impractical.  Typing a personal letter, cocktail
          parties, picnics, and holiday gifts are de minimis
          fringes.  Personal use of a copying machine is tax-free
          if the employer can show that 85% of the machine's use
          is for business.
          
          
          
