Tips on How to Build a Fortune Before 18
Teen entrepreneurs and parents, discover the importance of business and estate planning for young business owners. Learn essential tips here!
As a teen entrepreneur (or the parent of one,) it is important to understand the significance of business and estate planning, even before a teen reaches the age of 18. This article aims to provide you with essential information to help you navigate many aspects of entrepreneurship in an easy-to-understand manner.
First, congratulations on your entrepreneurial spirit! Starting a business at a young age is an incredible achievement, and with the right guidance and planning, you can set yourself up for long-term success.
You may or may not have adults in your life who own successful businesses to mentor or help guide you.
I know you likely think legal documents, paying for professional help and taxes are for “old” people. Nothing could be further from the truth for a teen entrepreneur.
Let’s dive into some topics no one else may be talking to you about while your focus is likely on marketing and growing your business.
The Importance of Business and Estate Planning:
a. Protecting your business interests:
Imagine you’re running a successful e-commerce store and suddenly fall ill or face an unexpected situation that prevents you from managing your business. By establishing a Business Power of Attorney, you can designate a trusted individual to step in and make important decisions on your behalf. This ensures your business continues to operate smoothly even in your absence.
b. Ensuring asset distribution:
It’s important to consider what will happen to your business and personal assets if something unfortunate were to occur. By creating a Will and Living Trust, you can outline your wishes regarding the distribution of your assets, including your business. This ensures that your hard-earned efforts are handled according to your preferences.
c. Maintaining financial records:
Implementing a bookkeeping system is like having a financial compass for your business. It helps you keep track of your income, expenses, and profits, making it easier to manage your finances and meet your tax obligations. By maintaining accurate records, you can make informed decisions about your business’s financial health and demonstrate your financial responsibility.
d. Seeking professional advice:
As a young entrepreneur, navigating the complexities of taxes and finances can be overwhelming. That’s why consulting with an accountant or tax professional is crucial. They can guide you through the tax requirements, help you understand deductions and credits, and ensure you comply with all necessary regulations. Their expertise can save you from costly mistakes and optimize your financial benefits.
e. Obtaining financial assistance:
Building a credit history can be challenging when you’re just starting out. One option is to apply for a secured credit card, which requires a deposit that acts as collateral. Another approach is having an adult with good credit co-own the account with you, which can provide you access to credit until you establish a credit history and score of your own. These steps help you demonstrate your creditworthiness, which will be beneficial as your business grows. After you are 18, and/or 12–18 months pass, when you have established your creditworthiness, you can ask to have the co-owner removed.
f. Separate business account:
It’s crucial to keep your personal and business finances separate. Opening a dedicated business-only account allows you to manage your payments and disbursements for bills and supplies more efficiently. It simplifies tracking your business expenses, ensuring you have accurate records for tax purposes, and demonstrates professionalism in managing your business finances.
“In today’s digital age, virtual assets hold tremendous value for young entrepreneurs. Websites, YouTube channels, and social media platforms can be monetized and become valuable assets that contribute to your overall business worth,” says John D. , a talented, successful, young entrepreneur.
Valuing Virtual Assets:
For example, suppose you started a YouTube channel where you provide informative content about healthy recipes. Over time, your channel gains popularity, attracts a significant subscriber base, and generates revenue through advertising and sponsorship. In such cases, the channel becomes a valuable virtual asset that can be sold, either with or without the associated brand. Including these assets in your estate planning ensures their protection and potential for future financial gains.
Tax Implications of Cryptocurrency:
If you accept payments or make disbursements using cryptocurrency, it’s essential to understand the tax implications. In the United States, these transactions are considered taxable events. It’s crucial to report them on your tax return accurately.
For instance, let’s say you sell handmade crafts online and accept payment in Bitcoin. The value of the Bitcoin you receive at the time of the transaction is subject to taxation as income.
If you use Bitcoin to pay for goods and services, they are valued at that time for any gains or losses.
The value of the transaction would also be a business expenses deduction.
The cryptocurrency platform you use should provide you with annual tax documents, such as a Form 1099, to help you accurately report your cryptocurrency transactions and comply with tax regulations.
Self-Employment and Social Security Taxes:
“As a young entrepreneur, it’s crucial to keep in mind that even if your tax professional determines you do not owe federal or state income taxes on the profits from your business, you have a legal tax responsibility to pay the separate Social Security taxes that are due above nominal net earnings thresholds. The Social Security tax is calculated annually based on your net self-employment earnings. Don’t be mistaken on this point, Social Security taxes are due regardless of your age whether you are self-employed entrepreneur, or an employee of someone else’s business as a W2 employee.” Amy Rose Herrick, Profit Building Specialist
If you earn a profit from your business activities, regardless of your age, you’re considered self-employed.
As a self-employed individual, you’re responsible for paying both the employer and employee portions of Social Security and Medicare taxes up to certain thresholds that increase slightly each year.
These taxes help fund your future retirement or disability benefits and fulfill one of your ongoing tax related obligations as a responsible business owner.
The Importance of an Investment Professional for Building Your Retirement Nest Egg and Wealth Building
As a young entrepreneur, it’s never too early to start planning for your financial future, particularly when it comes to retirement. While you may have heard of popular retirement savings options like Roth IRAs and 401(k) plans, it’s important to understand the value of having an investment professional on your team to guide you through these crucial decisions.
Expertise and Knowledge:
Investment professionals possess a wealth of knowledge and expertise in the world of finance and retirement planning. They can help you navigate the complexities of investment options, such as Roth IRAs and 401(k) plans with Roth IRA components, and ensure you make informed decisions aligned with your financial goals. Their insights and experience can help you make the most of your investment opportunities.
Personalized Investment Strategy:
Everyone’s financial situation is unique, and an investment professional can tailor an investment strategy specifically for you. They will consider your risk tolerance, investment goals, amount of funds you have available to work with, and time horizon to create a personalized plan that maximizes your chances of building wealth for future college expenses, should you choose that route, buying a home some day or other future cash needs including retirement decades away. By having an investment professional on your team, you can feel confident that your investments align with your short and long-term objectives.
Mitigating Risks and Maximizing Returns:
Investing in retirement accounts like Roth IRAs and 401(k) plans involves understanding market dynamics, asset allocation, and risk management. An investment professional can help you navigate market volatility, mitigate risks, and aim for optimal returns on your investments and how to reduce your income tax liabilities now and later. Their expertise can help you make informed decisions and potentially avoid common pitfalls that inexperienced investors may face.
Keeping Up with Changing Regulations:
Retirement accounts are subject to regulations and tax laws that may change over time. An investment professional stays abreast of these changes and can provide insights on how they may impact your investment strategy or investment options. They can help you navigate any new legislation, ensure compliance, and adjust your overall investment plan accordingly.
Remember, as a young entrepreneur, your focus may be on growing your business, but securing your financial future is equally important. By engaging an investment professional, you can leverage their expertise, create a personalized investment strategy, mitigate risks, and maximize returns that can make your financial life easier in the years to come. Together, you can build a solid foundation for a prosperous future.
Being a successful teen entrepreneur requires more than just product-based business expertise.
Young entrepreneurship demands careful planning and a solid understanding of legal and financial matters at a much earlier age than the bulk of your peers.
By implementing business and estate planning strategies early in your entrepreneurial journey, you are building a strong foundation for your future success.
Seek guidance from professionals early and often, keep meticulous records, and to ensure you comply with all tax regulations before the due dates to avoid wasting your profits on avoidable penalties and interest piling up daily until the balance due is paid in full.
Remember, with the right mindset and preparation, your entrepreneurial journey can lead to remarkable achievements and early wealth building.
Good luck!
“The earlier you start planning, the better equipped you’ll be to navigate the challenges and enjoy the rewards of entrepreneurship.” Sarah Thompson
If you found value in my content, please take a moment to clap, highlight, comment and subscribe for more entrepreneurial content to build your wealth and business. Check out my educational YouTube channel playlists at https://www.youtube.com/@amyprofitspecialist/playlists .
Disclosure: Content may or may not be supported with statistics, studies, quotes, graphics, or materials compiled using web-based resources. This article is for informational purposes only. It should not be considered Tax, Financial or Legal Advice. Consult a qualified professional before making any major financial decisions.
