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Want to Build More Wealth? Consider Starting a Small Business
One of the most common questions I get from clients is:
"How can I make more money, build more wealth, and pay less in taxes?"
Most people assume the answer involves finding the next great investment, maximizing a retirement account, or working longer hours.
While all of those can play a role, one of the most overlooked wealth-building strategies I discuss with clients is much simpler:
Start a small business.
Now, before you stop reading because you have no interest in quitting your job or opening a storefront, hear me out.
A small business doesn't have to be a full-time venture. It can be a side hustle, consulting practice, rental property, online business, or passion project built around something you genuinely enjoy doing.
In fact, if you've ever wondered whether a hobby, skill, or personal interest could become an additional source of income while creating new financial planning opportunities, I'd encourage you to reach out. Sometimes the biggest opportunities are hiding in talents and interests you already have.
For many people, the path to greater financial flexibility starts with building something they own.
Why Business Owners Often Have an Advantage
Most Americans earn income from their job, pay taxes on that income, and then use what's left over to cover everyday expenses.
Business owners operate differently.
When expenses are ordinary and necessary for operating a legitimate business, they may be deductible. This creates opportunities to structure spending in a more tax-efficient way while simultaneously investing in the growth of their business.
One of the reasons I encourage clients to explore business ownership is because it can create planning opportunities that simply don't exist when all of your income comes from a W-2 job.
The Concept of "Personal Conversion Expenses"
I first heard CPA Mark J. Kohler use the phrase "personal conversion expenses," and I've always thought it was a brilliant way to explain an important tax concept.
The idea is simple: most people earn income, pay taxes, and then spend what's left on personal expenses. Business owners, however, may have opportunities to deduct certain expenses when they are ordinary and necessary for operating a legitimate business.
In other words, some expenses that would normally be paid with after-tax dollars can potentially become deductible business expenses when they serve a valid business purpose. Of course, every deduction must comply with IRS rules and should be evaluated with a qualified tax professional.
I don't take credit for the phrase, but I think Mark's term "personal conversion expenses" does a great job of illustrating one of the many advantages of business ownership.
What Does That Look Like in Practice?
The goal is never to create deductions where they don't belong. Rather, it's about understanding how a legitimate business changes the way certain expenses are treated for tax purposes.
Examples may include expenses related to:
Professional education and training
Marketing and advertising
Technology and software
Office equipment
Professional services
Business travel
Home office expenses when applicable under IRS rules
When these expenses are directly tied to running a business and meet IRS requirements, they may become deductible business expenses rather than simply personal spending.
Start With Something You Actually Care About
One mistake people make is thinking they need some revolutionary business idea to get started.
In my experience, the best side hustles and small businesses often begin with something you're already passionate about.
Maybe you enjoy woodworking, photography, fitness, gardening, repairing vehicles, coaching youth sports, writing, investing, or helping people solve problems. The business doesn't have to start big. It simply needs to be legitimate and focused on providing value to others.
When you genuinely enjoy the work, you're far more likely to stay committed through the inevitable challenges that come with building something new.
That's why I often encourage clients to think of business ownership as a passion project with profit potential. The income, tax benefits, and wealth-building opportunities are important, but they're often easiest to achieve when the business is built around something you truly care about.
The Bigger Opportunity: Ownership
The tax benefits can be valuable, but they're not the primary reason to start a business.
The real opportunity is ownership.
Historically, many financially successful individuals and families have built wealth through ownership of businesses, real estate, or both. Business ownership creates the potential for additional income streams and allows you to build an asset that can appreciate over time.
Even a modest side business can potentially help you:
Generate additional income
Create more flexibility in your financial plan
Build a valuable long-term asset
Access additional retirement planning opportunities
Diversify your income sources
Gain greater control over your financial future
A Foundation for Other Financial Strategies
One reason I'm such a strong advocate for entrepreneurship is that business ownership often serves as the foundation for many other financial and tax planning strategies.
In many cases, a small business can unlock opportunities that simply aren't available to individuals who earn only W-2 income.
That's why one of my favorite questions to ask clients is:
"What knowledge, skills, hobbies, or passions do you already have that could become a business?"
The answer doesn't have to involve quitting your job. Sometimes the best businesses begin as consulting work, freelance projects, a passion-based side hustle, an online business, or an investment property.
Final Thoughts
Starting a small business isn't right for everyone, and it should never be done solely for tax reasons. However, a legitimate business can provide a powerful combination of opportunities: increased income potential, wealth creation, and strategic tax planning.
If your goal is to improve your financial future, building something you own may be one of the most impactful steps you can take.
And as Mark J. Kohler's concept of "personal conversion expenses" helps illustrate, business ownership can often change the way you think about income, spending, and taxes altogether.
The best part? Your future business doesn't have to start with a formal business plan. It can start with a passion, a skill, or an idea you've been thinking about for years.
If you've been curious about whether a side hustle, rental property, consulting practice, or passion project could become part of your overall financial strategy, let's talk. I'd love to help you evaluate the opportunity and determine whether it fits your long-term goals.
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