The Dallas Morning News
Consider these extra costs when budgeting your startup
It takes money to make money — but when starting up your own business, some of the costs might surprise you. Starting a business requires more than just big investments like buying equipment and paying your staff — smallbusiness owners also face less obvious expenses to keep the business running and help it grow.
1. Business insurance
Business insurance protects you — and all the money and time you invested — against lawsuits and financial liabilities.
The cost of business insurance depends on your coverage, industry and the assets you’re protecting, so your best bet is to call an insurer for an individual quote. Insureon, an insurance company that services small businesses, says that small-business owners pay an average of $741 annually for general liability insurance.
Signing up for general liability insurance protects you from liability claims, negligence and property damage, and lawsuits if one of your employees is injured on the job. You’ll also want to take out property insurance for any property you own, as well as vehicle insurance for business vehicles.
2. Self-employment taxes
Being your own boss has some serious perks — you can delegate tasks however you’d like and guide the trajectory of your business without having to answer to upper management. But you’ll have to pay a little bit extra at tax time for self-employment taxes.
The self-employment tax covers Social Security contributions and payment for Medicare. Normally, employers pay a portion of these contributions for you — but as your own boss, you’ll pay them yourself.
According to the IRS, the self-employment tax is 15.3 percent if you make $127,200 or less. The Social Security portion of the tax is 12.4 percent of your income, and the Medicare portion is 2.9 percent. So if you earn $70,000 per year, you’ll pay $10,710 in self-employment tax. Any net income in excess of $127,200 is taxed at 2.9 percent.
3. Licenses and permits
Setting up your own business can include a fair amount of red tape. And cutting through that red tape comes at a cost since most permits and licenses require a fee.
For example, you might need to pay a license fee to your local government to build or renovate your business property. Depending on your industry, you might also need to file for a local or state business license. Business owners may incur additional costs to set up an LLC or other articles of incorporation if they want to further legally protect their business and assets.
4. Professional fees
“The biggest challenge for entrepreneurs is that most business owners try to be all things in the business — I call it the ‘chief cook and bottle washer,’ ” said Jay DesMarteau, head of small-business banking for TD Bank.
Those smaller tasks can distract you from running your business properly, so it’s smart to seek help when you’re overstretched. You might hire a lawyer, for example, to help you set up your business and visit an accountant or tax professional to keep in good standing with the IRS. Hiring a lawyer generally costs between $100 and $400 an hour, says David Goguen of Lawyers.com. Debt.org listed tax preparers at an average of $229 for itemized tax returns.