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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

by 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.

by 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.