Small Business Is Very, Very Big

Larry Holmes

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When people leave a job and say that they're “going in business for themselves, " it is often assumed that they simply can't find another job and are trying to make it on their own as an act of desperation. But the facts say that nothing could be further from the truth.

Scott Hodge, the president of The Tax Foundation, has written a very interesting report on the subject…

Here are some of the key points…

  • Over the past 25 years, the number of taxpayers reporting business activity on their individual tax returns has exploded.
  • Between 1980 and 2004 the total number of sole proprietorships, partnerships, farms, and S-Corporations has more than doubled - going from 13.3 million in 1980 to 17.5 million in 2004.
  • S-Corporations (a common corporate structure of small businesses) grew almost 700%, from 13.3 million in 1980 to about 3.5 million in 2004. There are now far more S-Corporations than the more traditional C-Corporation.
  • A very large percentage of high-income taxpayers have business income. And the higher the income the more likely they have business activity.
  • 43% of the top 20% and 74% of the top 1% of earners (earning more than $300,000 per year) have business income. Of those earning $1 million or more, 83% have business income.
  • The Tax Foundation estimates that taxpayers with business income paid 54.3 % of all individual income taxes in 2004.
  • There are only four ways to receive income. You can receive it as an employee. You can receive it as a self-employed person. You can receive it as a business owner. And/or you can receive it as an investor.

    The problem with earning income as an employee or a self-employed person is that you're exchanging your services for money. If you don't work, you don't get paid. But as a business owner and an investor you can build up passive income - money that comes in whether you work or not.

    It sounds to me like starting a small business is not an act of desperation. Far from it. It's more like a revolution, and one of the best ways to become financially free.

    Copyright 2005

    Larry Holmes invites you to visit Your common sense guide for financial and investment success.


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