There are few certain things in life: death and taxes. At least that’s how the saying goes. And yet many people who glamorize entrepreneurship seem to regularly miss the fact that people are required to pay taxes, and that taxes are massive part of doing business. You need to factor taxes into your online business if you want to perform in a consistent and sustainable manner.
Your taxes are a cost of doing business
People only view them as such when they start making real money, that’s why normies don’t notice. Also, many of the world’s largest corporations are employing loopholes in order to avoid taxes. They are still a cost of doing business, and a rather large one. Sure, it might feel good to say that you made $1 million in a year. But if you’re paying have of it you only make $500k. No ifs, ands or buts.
The taxes your business pays are subtracted from its overall value
You may not care much about the taxes that your business pays, but investors do. Let’s take the example of two businesses located in different countries, both earning $100,000 per year. One of them is getting taxed at 10%, and the other is tax free in the Cayman Islands. If the EBITDA multiple is 2.5x, the first business will be valued at $225,000 while the other is valued at $250,000. That’s $25,000 off of your net worth, solely due to jurisdiction! Taxes matter a lot in the long run.
You pay taxes retroactively, as a business owner
This is everywhere, as far as I know. After a year of making money, it’s your responsibility to figure out how much you owe the government, and to pay them promptly. It’s a ridiculous system, but it’s important to be aware of it before you start your own business.
If you get into tax trouble, the government will come after you
And we’re talking jail time. You don’t want to get into tax trouble. Having the government on your case really, really sucks. They’ll take your house and car, embarrass you, and freeze your bank accounts before they put you in prison. You need to be on top of this stuff beforehand. Not retroactively, as unfair as that is.
How low tax, low cost of living jurisdictions favor online businesses
In my country, you won’t pay any taxes at all if you make the median income. This means that to reach an equivalent social status to an American with my online business, I only need to work 75% as hard as if I were being taxed like them. This is a huge bonus! Imagine being able to make $30,000 per year rather than $40,000 and being able to live like the average American. Imagine how many vacations you would be able to take! It’s crazy how much of a difference this stuff ends up making in the long run. So much less work to do, overall. Additionally, mastering the skills required to start an online business.
Learn about your country’s taxable income thresholds
And find an accountant as soon as you meet them. If the accountant costs extra money, do the commensurate work required to pay them. It’s well worth the expense, because you’re going to be saving money as a result of their efforts. A good tax accountant can find lots of loopholes and deductions allowed by the government and totally change the size and nature of your bill.
How to set up your business in a low-tax jurisdiction
First of all, there’s only value to this if you’re going to be paying more than the amount it costs to have a corporation overseas. If you just want to move to Colombia and live free, you can do it on $1,000 per month and only have to deal with income taxes (if you even have to pay those). But if you want to start a company offshore, don’t do it yourself. Find a reputable offshore incorporation service and go from there. Don’t ask me how to do it. It’s above my pay grade.
Build transferrable skills and move
This is really the key to getting what you really want out of life. If you cann build skills that are so transferable that you’re able to move seamlessly, you can set up your business in a low-tax jurisdiction from the beginning. This often requires you to put in a crap load of effort on the front end in your 20s. It’ll be worthwhile because you’re building a true skillset that will make you powerful no matter where you go.
Nobody thinks about taxes. Nobody likes to think about taxes. Taxes really suck, and they make a lot of people very miserable for a reason. But you need to factor them into your calculations when starting an online business. As you can see, this is why I suggest most people maintain a side hustle. Running a business full-time sucks, and it can feel like you’re building on a house of cards at times. Who knows how things are going to change. You’re responsible when it all comes crashing down. Learn the basics of running a business young, so that you know how to build a side hustle in the future. Understanding taxes is a big part of “the basics”.
Thanks for paying attention.
