With so many investment options, many millionaires choose to invest in small business. Why do people with money choose to invest in this way, though? This article will discuss some of the reasons why millionaires prefer to invest in small and growing businesses.
You can touch it
Small businesses are tangible – You can drive by a business and show it to people, even take them inside and let them see it if it’s open. You can’t do that with stocks or other investments unless you show them the stock certificates.
You have more control over an investment in a small business. While you can’t control how well the business is going to do, you can do things to get the word out about your small business, such as advertise in different ways. You can also find out what’s going on with the small business, whereas if you invest in stocks, you have no control – you can’t always find out what decisions are being made that affect the value of your stock.
More earning opportunities
There are more ways to make money from small business investments. With stocks, you only make money when your stock goes up in value, and when the stock pays dividends. When you invest in small business, you can make money on top of the money you make from the sales of the business. You can rent out space your business’ building your business (if you own the entire building) or, you could add things like vending machines or laundry facilities to make extra money and to provide a convenience for customers and employees.
You have access to equity without selling your small business – If you invest in stocks, as previously mentioned you’ll only make money from the stock when you sell the stock or when it pays dividends. When you invest in small business, if you need money you can refinance the business, and take out a second line of credit against the equity you’ve built up in your business. You’ll still make money from the profits your business earns, and if profits are going up, the value of your business will go up. Thus, you’ll get the money you need without having to pay taxes on it.
You can write off expenses against your business income, write off mortgage interest, and reduce capital gains taxes. The federal government allows small businesses to take several income tax deductions. Some of these include:
- Using your home for your business – If you use part of your home for businesses reasons, you can deduct expenses for the part of your home you use for your business. Expenses you can deduct include mortgage interest, insurance, utilities, repairs, and depreciation. It’s important to note, however, that some of these can only be partly deducted. If your office is in your home, for example, you can only deduct electricity for the part of your home you use for your business. You would also only be able to deduct part of the rent or mortgage payment you make every month. If you have a phone line that’s only for business use, you can deduct the full amount of the phone line. You can also deduct the full amount of any furniture, office supplies, or equipment you buy for your office such as desks, computers, or printers if you’re using them only for business purposes. When you fill out your federal income taxes, you’ll be able to separate these.
- Using your car for your business – If you use your car for business reasons, you can deduct the mileage you drive for business reasons. Be sure you keep track of the miles you drive for business reasons because you’ll be able to deduct the miles you drive based on the mileage rate for the year – you can find out what current year’s mileage rate is on the IRS’s website. Also keep track of receipts for anything related to driving you did for business reasons, such as gas or tolls.
- Other expenses you can deduct include employees’ pay, the cost of any equipment you rent for your business, the cost of any insurance you have to take out for your business, any interest you pay on business loans, and any federal, state or local taxes that are directly attributable to your business.
Some states also offer additional incentives for investing in small businesses.
To take just one example, Georgia has several programs that help small businesses, such as Small Business Tax Relief program, which allows business owners to depreciate their business equipment faster by claiming the expense in year one instead of over several years.
They also provide angel investor tax credits to encourage early investment in start-up companies. This credit, which is called the Qualified Investor Angel Tax Credit, allows businesses and those who invest in small businesses to reduce the tax they owe to the state of Georgia dollar-for-dollar until the business or investor no longer owes any taxes.
Any credits that aren’t used can be carried forward and used within five years, so if the investor doesn’t owe any tax this year, they might be able to use them next year. The credit is equal to 35% of the amount invested in a qualified start-up – so if business owners or investors invest $10,000 in the business, they’ll get a $3500 credit. The credit is good between 2015 and 2018.
They will also finance from $35,000 to as much as $250,000 with the Entrepreneur and Small Business Loan Guarantee Program. This program provides financing to people who start businesses in an eligible area.
Many millionaires choose to live in major cities such as New York or London. These are multicultural hives of business activity for investors of all nationalities.
You will need to demonstrate that your business is something special, that you have invested to the full using your own funds and that it is well-managed. No millionaire is going to invest his or her money in a one-man operation that is run on a shoestring. Many are looking for the “next big thing”, for true innovation. As millionaire Tej Kohli puts it, “We are looking for companies that are likely to disrupt their niche.”
Article Submitted By Community Writer