California is a dynamic and diverse state. You can literally be on the beach in the morning and snow skiing on a mountain in the afternoon. In addition to beauty and a temperate climate, California has prestigious universities graduating top talent every semester. But how does California stack up when it comes to small business ownership? Here are areas that impact entrepreneurs running a business in California.
Double Taxation for Small Businesses
California has higher-than-average state income taxes on businesses. But the news gets worse. According to Investopedia, California is one of the few states that imposes both taxes, business and personal, on small business owners who set up their businesses as pass-through entities, such as S corporations or limited liability companies (LLCs). Businesses formed using these designations avoid federal income tax because the income they earn passes through to the business owners. The federal government considers it double taxation to tax both the business owners on the pass-through income and the business itself, so it taxes only the business owners at personal income tax rates. While most states follow the same philosophy, California stands out as one that hits these business owners from both sides.
In early 2016, California’s governor passed a law ensuring minimum wage in California will raise to $15 by the year 2022. It’s seen as a positive for those who earn a minimum wage. However, local small businesses are finding it difficult to pay the $15 an hour. The National Federation of Independent Businesses(NFIB) outlined how 99.2% of businesses in California are small businesses that will be directly impacted.
Employee Retirement Plans
California and four other states aim to use employers to revolutionize saving for millions of workers. The states are trying to get more workers to participate in a retirement saving plan by either offering a plan to workers or connecting them to a portable, state-run retirement option.
According to Bloomberg news, California is rolling out its plan gradually, starting with the largest employers and slowly working its way down to small businesses. The mandate on the smallest California businesses isn’t expected to go into effect for five years.
Going on four years, the great California drought has impacted small businesses in a variety of sectors. Record high prices for water can take a toll on the bottom line of any type of business. In an interview with Entrepreneur magazine, Ben Paler, a co-owner of car-wash outlets near San Jose, said, “The drought here in California has spiked my water bill. But the state has also imposed mandatory curbs on water use, and that’s making it tough to run my business. You’d think you’re guaranteed access to basic resources; but on some days we don’t [have them].”
The Economist reports that entrepreneurs may spend lots of time gathering all the permits needed to start a business. Opening a restaurant can take more than two years in California. To determine what permits are required for your business visit the Go Biz website. This website assists you in finding appropriate permit information for your business. It also provides contact information for the various agencies that administer & issue these permits.
In the good old days, small business owners in California had to visit their local bank to secure funds. Through innovative technology, there are now lots of online options to explore. There are even creative ways you can raise money from anywhere in the world like starting a Go Fund Me campaign. Although there are many funding solutions, a small business owner in California should always try to find a low-interest loan with long terms. If you qualify, an SBA loan can be the right choice with low rates and 10-year terms. Visit SmartBiz today and discover in about five minutes if you’re qualified for an SBA loan. Use the promo code “blog” and receive $500 off of your closing costs. SmartBiz, a northern California company, has earned a 9.5 out of 10 customer satisfaction rating on the independent review site,TrustPilot, and were named the Best SBA Loan Provider in 2016 by both Fit Small Business as well as TopTenReviews. Find out in about 5 minutes if you’re qualified for a low-cost SBA loan with no impact on your credit score here.