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ADVISE ABOUT TAXES.
File your taxes. You do not need the IRS on your back! So, plan to pay them on time.
File your taxes. You do not need the IRS on your back! So, plan to pay them on time.
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Special Note: please be advised that this article was copied
from the Internet.The author is GREG JOHNSON Click here for the entire page.
BENEFITS OF OWNING A BUSINESS!
I love being self-employed. For years, I worked for other people and was relatively happy.
However, I always had a nagging feeling that I wanted to strike out on my own. I wanted
more freedom. I wanted control over my own destiny. And, now that I finally made it
to self-employment, I’ll do whatever it takes to never look back.
There is a lot to love about self-employment. You have the freedom to make your own
choices and decisions. You can set your own hours, build your own investment (rather
than somebody else’s), and never have to ask off for vacation or family events. Of
course, you don’t get paid when you go on vacation either, so there is definitely a balance
that needs to be struck.
Self-employment also comes with a lot more risk. If you have a bad month,you are not
guaranteed a salary. Furthermore, you ‘re completely on your own when it comes to
covering costs for healthcare, retirement, and business expenses. You can’t just turn in an
expense report and get reimbursed. Everything that you spend on your business comes
directly out of your pocket.
See also: How to Get Healthcare if You’re Self-Employed
Worst of all, you’ll learn what it means to pay the dreaded self-employment tax. Instead of
your employer paying for half of your social security and medicare taxes, you pay the
entire thing. When you pay both halves of your payroll taxes AND write a check to
cover your quarterly income, it quickly becomes apparent how much you are actually
paying to the government each month. Trust me, it’s a shock to the system.
Don’t get me wrong. For me, the benefits of self-employment far outweigh the drawbacks.
Along with the personal benefits I’ve already mentioned, there are obviously some
financial benefits as well. Here are a few of my favorite financial benefits of being self-
employed.
Unlimited Income Potential
One of the greatest rewards of self-employment is the opportunity to make an unlimited
amount of income. Unlike most jobs in the corporate world, your salary is never be
capped or topped out. You are in control of how much money you ultimately make.
Want a raise? Either work harder, drum up more business, or both. With self-employment,
you get to reap what you sow – which means your income potential is only limited by your
ideas and your work ethic. This is huge, but also comes with a lot of responsibility. You
only get paid for the work you actually do, not for simply showing up and punching a
clock.
Save Money on Transportation
If you’re lucky enough to run your business out of your home, like me, you can save a
bundle on transportation costs to and from work. You probably don’t think about how
much it costs you to travel to work because it’s become habit for you. According to the
U.S. Census Bureau, the mean travel time to work in the United States is 25.5 minutes.
That is about 50 minutes a day, round-trip.
Let’s assume you pay about $30 a week in gas to get to work. That’s $1,560 a year. By
not driving to work, you may only fill up once a month. That’s a savings of $1,200. This
doesn’t even take into account the wear and tear on your car. More importantly, you’ll get
something even more valuable back: Your time. Transportation to work may not be the
most obvious cost, but it definitely adds up.
Save Money on Clothing
Again, while this isn’t true for all self-employed individuals, if you’re able to work from
home you can save money throughout the year on clothing costs. Those working in a
professional office atmosphere have to dress the part. Even if you don’t have to wear a
suit every day, you’re still expected to look professional.
I used to spend about $500 a year on clothing for work. Now that I work at home, I can
wear my pajamas if I want to and nobody would know the difference.
Tax Deductions
When you think about the financial benefits of being self-employed, you immediately
think of tax deductions. Yes, tax deductions are nice. But, the truth is that these
deductions may not be as beneficial as they seem. Those who are not self-employed
often think that a “write off” suddenly makes everything free. It doesn’t. You still have to
pay for it. You’re just not charged income tax on the amount of money you spent.
The effect is that self-employed individuals are able to buy certain business related items
with pre-tax dollars.
Here are a few of the most common tax deductions for business owners:
Meals
Provided that you are either traveling for business or meeting with a client, a
meal can count as a tax deduction. This is a nice perk, particularly if your business
requires a lot of lunch or dinner meetings. However, you rarely can deduct the entire
meal. Typically, you can deduct 50% of the cost of the meal, provided that you save your
receipt and note the business purpose.
Entertainment
Like with meals, 50% of the cost of entertaining a business client can be
deducted from your taxes. You are required to do business either immediately prior,
during, or immediately after the event. Again, you need to keep detailed records and
receipts for the event.
Travel
Traveling for work events is another nice tax deduction. If you are self-employed,
you can deduct the cost of your travel expenses (airline tickets, hotels, rental cars, taxis,
etc.) from your taxes. However, your travel must have a specific business purpose.
Passing out a few business cards to the beach attendant in Cancun isn’t going to cut it.
Be sure you can prove that your travel was business related. If you’re mixing business
and pleasure, only the business portion of your trip is deductible.
Transportation
If you use your personal vehicle to conduct business, you can write off
your business related trips as a tax deduction. I’ve always found the standard mileage
deduction the easiest way to go about this. Again, you’re not allowed to deduct any
personal use, and you need to keep excellent records in case of an audit.
Home Office
If you have a room in your home that is specifically used for business
purposes, then you have the right to claim it as a tax deduction. This area needs to be
dedicated specifically to work, so be careful using this one. I use the home office
deduction each year, but it really doesn’t amount to that much. Because the formula is so
complex, I usually take the “Safe Harbor” home office deduction to avoid any issues.
Internet & Phone
In addition to your home office, you can deduct the portion of your
internet and phone bills that you use for business. Again, if you use these items for
personal use, you may only deduct that portion of the bill that is dedicated to business.
Health Insurance
Self-employed business owners are able to deduct the cost of their
health insurance premiums (as well as the premiums for their spouse and children),
provided that they are not eligible to be covered under another plan (such as their
spouse’s employer sponsored plan.) This is certainly a nice benefit, but it isn’t as great as
it might seem. Because self-employed people usually don’t have access to group health
insurance rates, premiums for coverage on the open market can be outrageously high.
For instance, the cheapest plan available for my family costs over $800/month in
premiums with a deductible of over $13,000. Remember, this is just a deduction, so my
health insurance costs are not free. Of course I’m going to take the deduction, but it is far
outweighed by the fact that being self-employed limits my access to plans with lower
premiums.
As a freelancer, there are financial apps designed specifically for you that will enable you
to take advantage of these tax deductions. Take, for example, Hurdlr. They’ll automatically
track all your expenses and income streams and automatically find you tax deductions.
Retirement Savings
By far the biggest financial benefit offered by the government to self-
employed individuals are the qualified retirement savings plans that are available. These
options include SIMPLE IRA, SEP IRA, and Solo 401(k) plans – and they are awesome.
Because employees often receive “free money” from their employer to put toward their
retirement, they are subject to stricter contribution limits. Self-employed individuals must
fund their retirement completely on their own, so the contribution limits are far more
generous.
For instance, SEP IRA limits for 2016 are set at either 20% of compensation or $53,000,
whichever is smaller. That is a ton of tax deferred money, which is a huge benefit.
It reduces the amount of tax owed now and (in theory) should reduce the amount of tax
you’ll pay later (because you should be in a lower tax bracket). Again, this isn’t free
money, but the generous limits are certainly a plus.
Note: SEP IRA contributions to an employee or 25% of compensation or $53,000,
whichever is smaller (Source: IRS). However, as the employer, you can only deduct
contributions to your own SEP IRA up to 20% of compensation or $53,000, whichever is
smaller (Source: IRS). These limitations apply to 2015 and 2016 tax years.
Wrapping Up
While there are many financial benefits of being self-employed, not all of
them are as lucrative as they might seem. However, the freedom and opportunity that
self-employment allows is hard to quantify. If you’re thinking about self-employment,
carefully consider the costs and benefits before making the leap.
I love being self-employed. For years, I worked for other people and was relatively happy.
However, I always had a nagging feeling that I wanted to strike out on my own. I wanted
more freedom. I wanted control over my own destiny. And, now that I finally made it
to self-employment, I’ll do whatever it takes to never look back.
There is a lot to love about self-employment. You have the freedom to make your own
choices and decisions. You can set your own hours, build your own investment (rather
than somebody else’s), and never have to ask off for vacation or family events. Of
course, you don’t get paid when you go on vacation either, so there is definitely a balance
that needs to be struck.
Self-employment also comes with a lot more risk. If you have a bad month,you are not
guaranteed a salary. Furthermore, you ‘re completely on your own when it comes to
covering costs for healthcare, retirement, and business expenses. You can’t just turn in an
expense report and get reimbursed. Everything that you spend on your business comes
directly out of your pocket.
See also: How to Get Healthcare if You’re Self-Employed
Worst of all, you’ll learn what it means to pay the dreaded self-employment tax. Instead of
your employer paying for half of your social security and medicare taxes, you pay the
entire thing. When you pay both halves of your payroll taxes AND write a check to
cover your quarterly income, it quickly becomes apparent how much you are actually
paying to the government each month. Trust me, it’s a shock to the system.
Don’t get me wrong. For me, the benefits of self-employment far outweigh the drawbacks.
Along with the personal benefits I’ve already mentioned, there are obviously some
financial benefits as well. Here are a few of my favorite financial benefits of being self-
employed.
Unlimited Income Potential
One of the greatest rewards of self-employment is the opportunity to make an unlimited
amount of income. Unlike most jobs in the corporate world, your salary is never be
capped or topped out. You are in control of how much money you ultimately make.
Want a raise? Either work harder, drum up more business, or both. With self-employment,
you get to reap what you sow – which means your income potential is only limited by your
ideas and your work ethic. This is huge, but also comes with a lot of responsibility. You
only get paid for the work you actually do, not for simply showing up and punching a
clock.
Save Money on Transportation
If you’re lucky enough to run your business out of your home, like me, you can save a
bundle on transportation costs to and from work. You probably don’t think about how
much it costs you to travel to work because it’s become habit for you. According to the
U.S. Census Bureau, the mean travel time to work in the United States is 25.5 minutes.
That is about 50 minutes a day, round-trip.
Let’s assume you pay about $30 a week in gas to get to work. That’s $1,560 a year. By
not driving to work, you may only fill up once a month. That’s a savings of $1,200. This
doesn’t even take into account the wear and tear on your car. More importantly, you’ll get
something even more valuable back: Your time. Transportation to work may not be the
most obvious cost, but it definitely adds up.
Save Money on Clothing
Again, while this isn’t true for all self-employed individuals, if you’re able to work from
home you can save money throughout the year on clothing costs. Those working in a
professional office atmosphere have to dress the part. Even if you don’t have to wear a
suit every day, you’re still expected to look professional.
I used to spend about $500 a year on clothing for work. Now that I work at home, I can
wear my pajamas if I want to and nobody would know the difference.
Tax Deductions
When you think about the financial benefits of being self-employed, you immediately
think of tax deductions. Yes, tax deductions are nice. But, the truth is that these
deductions may not be as beneficial as they seem. Those who are not self-employed
often think that a “write off” suddenly makes everything free. It doesn’t. You still have to
pay for it. You’re just not charged income tax on the amount of money you spent.
The effect is that self-employed individuals are able to buy certain business related items
with pre-tax dollars.
Here are a few of the most common tax deductions for business owners:
Meals
Provided that you are either traveling for business or meeting with a client, a
meal can count as a tax deduction. This is a nice perk, particularly if your business
requires a lot of lunch or dinner meetings. However, you rarely can deduct the entire
meal. Typically, you can deduct 50% of the cost of the meal, provided that you save your
receipt and note the business purpose.
Entertainment
Like with meals, 50% of the cost of entertaining a business client can be
deducted from your taxes. You are required to do business either immediately prior,
during, or immediately after the event. Again, you need to keep detailed records and
receipts for the event.
Travel
Traveling for work events is another nice tax deduction. If you are self-employed,
you can deduct the cost of your travel expenses (airline tickets, hotels, rental cars, taxis,
etc.) from your taxes. However, your travel must have a specific business purpose.
Passing out a few business cards to the beach attendant in Cancun isn’t going to cut it.
Be sure you can prove that your travel was business related. If you’re mixing business
and pleasure, only the business portion of your trip is deductible.
Transportation
If you use your personal vehicle to conduct business, you can write off
your business related trips as a tax deduction. I’ve always found the standard mileage
deduction the easiest way to go about this. Again, you’re not allowed to deduct any
personal use, and you need to keep excellent records in case of an audit.
Home Office
If you have a room in your home that is specifically used for business
purposes, then you have the right to claim it as a tax deduction. This area needs to be
dedicated specifically to work, so be careful using this one. I use the home office
deduction each year, but it really doesn’t amount to that much. Because the formula is so
complex, I usually take the “Safe Harbor” home office deduction to avoid any issues.
Internet & Phone
In addition to your home office, you can deduct the portion of your
internet and phone bills that you use for business. Again, if you use these items for
personal use, you may only deduct that portion of the bill that is dedicated to business.
Health Insurance
Self-employed business owners are able to deduct the cost of their
health insurance premiums (as well as the premiums for their spouse and children),
provided that they are not eligible to be covered under another plan (such as their
spouse’s employer sponsored plan.) This is certainly a nice benefit, but it isn’t as great as
it might seem. Because self-employed people usually don’t have access to group health
insurance rates, premiums for coverage on the open market can be outrageously high.
For instance, the cheapest plan available for my family costs over $800/month in
premiums with a deductible of over $13,000. Remember, this is just a deduction, so my
health insurance costs are not free. Of course I’m going to take the deduction, but it is far
outweighed by the fact that being self-employed limits my access to plans with lower
premiums.
As a freelancer, there are financial apps designed specifically for you that will enable you
to take advantage of these tax deductions. Take, for example, Hurdlr. They’ll automatically
track all your expenses and income streams and automatically find you tax deductions.
Retirement Savings
By far the biggest financial benefit offered by the government to self-
employed individuals are the qualified retirement savings plans that are available. These
options include SIMPLE IRA, SEP IRA, and Solo 401(k) plans – and they are awesome.
Because employees often receive “free money” from their employer to put toward their
retirement, they are subject to stricter contribution limits. Self-employed individuals must
fund their retirement completely on their own, so the contribution limits are far more
generous.
For instance, SEP IRA limits for 2016 are set at either 20% of compensation or $53,000,
whichever is smaller. That is a ton of tax deferred money, which is a huge benefit.
It reduces the amount of tax owed now and (in theory) should reduce the amount of tax
you’ll pay later (because you should be in a lower tax bracket). Again, this isn’t free
money, but the generous limits are certainly a plus.
Note: SEP IRA contributions to an employee or 25% of compensation or $53,000,
whichever is smaller (Source: IRS). However, as the employer, you can only deduct
contributions to your own SEP IRA up to 20% of compensation or $53,000, whichever is
smaller (Source: IRS). These limitations apply to 2015 and 2016 tax years.
Wrapping Up
While there are many financial benefits of being self-employed, not all of
them are as lucrative as they might seem. However, the freedom and opportunity that
self-employment allows is hard to quantify. If you’re thinking about self-employment,
carefully consider the costs and benefits before making the leap.
ADVISE ABOUT TAXES.
File your taxes. You do not need the IRS on your back! So, plan to pay them on time.
ADVISE ABOUT TAXES.
File your taxes. You do not need the IRS on your back! So, plan to pay them on time.