6 ms·

As someone who does freelance in a developed country, competition from foreigners isn't too big of a deal. The main problem is, with the way businesses are ran

by nickjj 8y ago

As someone who does freelance in a developed country, competition from foreigners isn't too big of a deal. The main problem is, with the way businesses are ran in the US, it's REALLY expensive being self employed. You pay a massive amount in taxes and you don't get any social security matching from an employer or health, dental, etc. benefits. Basically, you need to make a LOT more pre-tax to come out to the point where you're living the same type of lifestyle as someone who has a full time position.

spking 8y ago
Seconded. You learn the hard way to immediately carve 30% of your income to a savings account that you don't touch that goes straight to quarterly tax payments.
- nickjj 8y ago
  > You learn the hard way to immediately carve 30% of your income to a savings account that you don't touch that goes straight to quarterly tax payments. Yes, and if you avoid paying quarterly taxes or underpay by accident (because you made more than you thought you would have), you get hit with a huge penalty. Also it's really brutal that certain things have no effect on your "small business tax" of about 13%. For example, let's say you make 100k and you had 50k in medical bills for an emergency. For most people, this is easy. About 90% of that can be written off your income tax. So you'll get taxed at 65k income instead of 100k. If you run your own business, you'll get that same income tax write off (65k effective income), however you'll need to pay an extra 13% on 100k not 65k. You're on the hook for the full "small business tax" on your total income in this case. It's complete bs because most medical emergencies (regardless of cost) are things that render you unable to work or do anything. Insurance doesn't even help either because there's a million loop holes to allow insurance companies to deny you coverage on certain things.
- spookthesunset 8y ago
  One of the things I “miss” most about freelance is cutting giant checks to the IRS every quarter. That being said going freelance means you can deduct all kinds of crazy stuff to bring down your income like your cell phone, internet, a portion of your housing costs for home office, electricity, meals & entertainment, computer hardware, car, etc. You also get to setup an SEP IRA which lets you divert substantially more pre-tax cash into retirement than you could with IRA’s and 401k’s offered by a W2 shop. One key thing to remember is W2 employers pay a bunch more payroll taxes “behind the scenes”. As a 1099 you get exposed to them directly. In addition you get exposed to state / municipal business taxes as well. Thus, you need to factor all that into your bill rate. In the end, I think the taxes can work out much better for those self-employed. It just requires some planning and help from your accountant.
iamcasen 8y ago
Say whaaat? You must not be based in the USA then. Owning your own business means EVERYTHING is a tax write-off. I mean everything. Food you spend on lunch, your home office space, anything you spend money on during the course of doing business. All of it is a tax write-off. You do not get any of those write-offs if you work a corporate gig. If your income is the same in both cases, you will pay significantly less tax as a freelancer.
- nickjj 8y ago
  I do live in the US as a solo freelance developer. You can't write off food in most cases, and if you happen to work from home, you can write off some of your home office (based on square feet), assuming you have a separate work room from where you sleep. For example, you can't just buy $300 / month in groceries and expect to be able to write all of that off because you happen to eat 3 meals during "work hours". Sure if you goto a tech meetup once in a while and eat dinner out, you could write that off, but that's an outlier situation (at least for me). Having your employer match a retirement fund + benefits + not having to pay both halves of social security is a lot more money saved than being able to write off buying a computer, cell phone or a couple of meals.
  - iamcasen 8y ago
    Yeah, not 300 a month in groceries, but you can write off your internet bill, you phone bill and all that. Obviously if you can get an employer match for retirement and good benefits that's true, that's a huge part of compensation that's not taxed.
    - nickjj 8y ago
      > but you can write off your internet bill, you phone bill and all that. Internet + phone is about $80 / month total. Even if you somehow managed to write off $100 / month in food (which I think is a stretch) that's still only $180 / month. Compare that to paying for health insurance which is around $500 per month per adult for the worst coverage possible. Normally this is a freebie for being employed. Then you get about a 7% increase in post-tax income just because your employer pays half of your social security. Then on top of that you might get matching up to a certain percent in a retirement fund. Then on top of that you might get other forms of insurance plus stock benefits. Then on top of that you might get free lunch every day too. Long story short, writing off $150-200 / month in business expenses is not even in the same galaxy as not having to pay $500 per adult for health insurance plus an extra $7,000 in your pocket per year from going halfies on the social security (100k salary). That's already wildly better and it's not even taking into account for retirement matching perks, stocks, other insurances, free lunch every working day, etc..

by nickjj 8y ago

spking 8y ago

Seconded. You learn the hard way to immediately carve 30% of your income to a savings account that you don't touch that goes straight to quarterly tax payments.

nickjj 8y ago
> You learn the hard way to immediately carve 30% of your income to a savings account that you don't touch that goes straight to quarterly tax payments. Yes, and if you avoid paying quarterly taxes or underpay by accident (because you made more than you thought you would have), you get hit with a huge penalty. Also it's really brutal that certain things have no effect on your "small business tax" of about 13%. For example, let's say you make 100k and you had 50k in medical bills for an emergency. For most people, this is easy. About 90% of that can be written off your income tax. So you'll get taxed at 65k income instead of 100k. If you run your own business, you'll get that same income tax write off (65k effective income), however you'll need to pay an extra 13% on 100k not 65k. You're on the hook for the full "small business tax" on your total income in this case. It's complete bs because most medical emergencies (regardless of cost) are things that render you unable to work or do anything. Insurance doesn't even help either because there's a million loop holes to allow insurance companies to deny you coverage on certain things.
spookthesunset 8y ago
One of the things I “miss” most about freelance is cutting giant checks to the IRS every quarter. That being said going freelance means you can deduct all kinds of crazy stuff to bring down your income like your cell phone, internet, a portion of your housing costs for home office, electricity, meals & entertainment, computer hardware, car, etc. You also get to setup an SEP IRA which lets you divert substantially more pre-tax cash into retirement than you could with IRA’s and 401k’s offered by a W2 shop. One key thing to remember is W2 employers pay a bunch more payroll taxes “behind the scenes”. As a 1099 you get exposed to them directly. In addition you get exposed to state / municipal business taxes as well. Thus, you need to factor all that into your bill rate. In the end, I think the taxes can work out much better for those self-employed. It just requires some planning and help from your accountant.

iamcasen 8y ago

Say whaaat? You must not be based in the USA then. Owning your own business means EVERYTHING is a tax write-off. I mean everything. Food you spend on lunch, your home office space, anything you spend money on during the course of doing business. All of it is a tax write-off. You do not get any of those write-offs if you work a corporate gig. If your income is the same in both cases, you will pay significantly less tax as a freelancer.

nickjj 8y ago
I do live in the US as a solo freelance developer. You can't write off food in most cases, and if you happen to work from home, you can write off some of your home office (based on square feet), assuming you have a separate work room from where you sleep. For example, you can't just buy $300 / month in groceries and expect to be able to write all of that off because you happen to eat 3 meals during "work hours". Sure if you goto a tech meetup once in a while and eat dinner out, you could write that off, but that's an outlier situation (at least for me). Having your employer match a retirement fund + benefits + not having to pay both halves of social security is a lot more money saved than being able to write off buying a computer, cell phone or a couple of meals.
- iamcasen 8y ago
  Yeah, not 300 a month in groceries, but you can write off your internet bill, you phone bill and all that. Obviously if you can get an employer match for retirement and good benefits that's true, that's a huge part of compensation that's not taxed.
  - nickjj 8y ago
    > but you can write off your internet bill, you phone bill and all that. Internet + phone is about $80 / month total. Even if you somehow managed to write off $100 / month in food (which I think is a stretch) that's still only $180 / month. Compare that to paying for health insurance which is around $500 per month per adult for the worst coverage possible. Normally this is a freebie for being employed. Then you get about a 7% increase in post-tax income just because your employer pays half of your social security. Then on top of that you might get matching up to a certain percent in a retirement fund. Then on top of that you might get other forms of insurance plus stock benefits. Then on top of that you might get free lunch every day too. Long story short, writing off $150-200 / month in business expenses is not even in the same galaxy as not having to pay $500 per adult for health insurance plus an extra $7,000 in your pocket per year from going halfies on the social security (100k salary). That's already wildly better and it's not even taking into account for retirement matching perks, stocks, other insurances, free lunch every working day, etc..