4 ms·

They also have benefits that W2 employees do not, like deducting expenses, $50k+ in allowable retirement contributions per year, and the 20% QBI deduction.

fullStackOasis 7y ago
You are certainly correct, and those are nice to have. It pays to keep in mind that in order to deduct an expense, you have to pay the expense. So as a freelancer, when I pay for my computer, that's $1500 out of pocket. Then I don't pay quite so much in taxes. But I've still got $1500 less at the end of the year than if I worked at a business and they were paying for my computer. $50K+ into your retirement is also great, but it's most useful for those who are making so much money that they can afford to put that money away and not touch it until they're 62. Some people can certainly do that, but I doubt that it's very common. Even FTE often don't max out their 401K. Here's a fool article that claims the average is rate is 7%: https://www.fool.com/retirement/2017/01/15/average-americans-401k-contributions-by-age-and-in.aspx https://www.fool.com/retirement/2017/01/15/average-americans...
- vitaflo 7y ago
  You would also then have a $1500 asset that you could sell at a later date. When you're an employee you don't have that option. If you aren't able to max out your retirement account it means your QBI deduction is larger. As with most things business/tax related, there's a lot of grey area and nuance here.
  - blaser-waffle 7y ago
    > You would also then have a $1500 asset that you could sell at a later date. When you're an employee you don't have that option. Maybe if you turned around and resold the system immediately. But I'm not gonna pay 1500 bucks for your 4 year old 133t machine that you spilled coffee and sneezed on.
    - vitaflo 7y ago
      Of course. That’s why depreciation and MACRS exists. The point is it’s not a $1500 sunk cost. You get a multi year deduction and an asset in return. How you handle that asset is up to you.

fullStackOasis 7y ago

You are certainly correct, and those are nice to have. It pays to keep in mind that in order to deduct an expense, you have to pay the expense. So as a freelancer, when I pay for my computer, that's $1500 out of pocket. Then I don't pay quite so much in taxes. But I've still got $1500 less at the end of the year than if I worked at a business and they were paying for my computer. $50K+ into your retirement is also great, but it's most useful for those who are making so much money that they can afford to put that money away and not touch it until they're 62. Some people can certainly do that, but I doubt that it's very common. Even FTE often don't max out their 401K. Here's a fool article that claims the average is rate is 7%: https://www.fool.com/retirement/2017/01/15/average-americans-401k-contributions-by-age-and-in.aspx https://www.fool.com/retirement/2017/01/15/average-americans...

vitaflo 7y ago
You would also then have a $1500 asset that you could sell at a later date. When you're an employee you don't have that option. If you aren't able to max out your retirement account it means your QBI deduction is larger. As with most things business/tax related, there's a lot of grey area and nuance here.
- blaser-waffle 7y ago
  > You would also then have a $1500 asset that you could sell at a later date. When you're an employee you don't have that option. Maybe if you turned around and resold the system immediately. But I'm not gonna pay 1500 bucks for your 4 year old 133t machine that you spilled coffee and sneezed on.
  - vitaflo 7y ago
    Of course. That’s why depreciation and MACRS exists. The point is it’s not a $1500 sunk cost. You get a multi year deduction and an asset in return. How you handle that asset is up to you.