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What's the Cost of Being Your Own Boss?
Townhall.com ^ | January 30, | Carrie Schwab Pomerantz

Posted on 01/30/2013 1:04:51 PM PST by Kaslin

Dear Carrie, I'm 55 and in a position to leave my full-time job and work freelance from home. I'm trying to weigh the financial benefits vs. costs. Any tips? --A Reader

Dear Reader, When thinking about working at home, most people focus only on the pluses: no commute, flexible schedule, more personal time, little or no cost for things like transportation, wardrobe and eating out. It all sounds great. And it can be. By working freelance from your home, you'll certainly cut down on a lot of work-related expenses.

But what might you be giving up? Most full-time jobs come with a package of benefits that may far outweigh the everyday costs of going to work. And what additional expenses might you be taking on?

Working for yourself means a lot of freedom, but it also means a lot of responsibility. Many of those responsibilities are financial, so you're wise to consider them carefully before you start planning your going away party.

You are your own benefits provider

This is probably one of your biggest costs. If you've had group health insurance through your employer, you may be in for a shock at just how expensive an individual policy can be. You may be able to get health insurance through a professional organization, but chances are it will still be considerably more than you're used to paying.

Likewise, if you've been getting life insurance through work, you'll now be on your own for that as well. At 55, even the cost for a term-life policy can be significant.

And what about sick days and vacation pay? When you work for yourself, there's no one to cover for you.

You pay all Social Security and Medicare taxes

When working for a company, it's easy to forget that your employer picks up half the bill for Social Security and Medicare taxes. And we're quite used to having the other half deducted from our paycheck. But working for yourself, you pay the whole amount in the form of self-employment taxes. For 2013, that tax is 15.3 percent on earnings up to $113,700. If you earn more than that, you'll still pay a 2.9 percent Medicare tax on any additional earnings -- plus a 0.9 percent surtax on incomes over $200,000 for singles and $250,000 for married filing jointly. This can add up to quite a tax bite.

The cost of doing business can increase your bills

Insurance and taxes are probably the biggest costs, but the everyday cost of doing business can add up, too. Since you'll be working from home, you'll use more water, heat and electricity. Utility bills are bound to go up.

You'll also have to pay for office equipment, supplies and any additional computer and Internet needs. Generally, an employer has experts available to help with downed computers or malfunctioning printers. Once again, you'll have to be your own resource and foot the bill for both purchase and repairs.

Retirement savings is up to you

With no 401(k) contribution automatically deducted from your paycheck --and no employer match -- you'll have to be especially vigilant about saving for retirement.

If you do go freelance, I'd suggest looking into a couple of small business retirement plans. One is a Simplified Employee Pension Plan (SEP-IRA), which is easy to open and requires very little paperwork. A SEP lets you make fairly high annual contributions -- potentially much higher than an employer's 401(k). The maximum is 25 percent of your gross self-employment income (20 percent of net income) with a cap of $51,000 for 2013. Just note that if you decide to hire an employee, you would be responsible for contributing an equal percentage to their account.

The other is an Individual 401(k) -- either traditional or Roth. This plan requires a bit more paper work but allows even higher annual contributions - 100 percent of earnings up to $17,500, plus 20 percent of net self-employment income up to a total of $51,000. If you're 50 or older, you can contribute an additional $5,500 to a traditional 401(k) (not to a Roth), for a potential annual total of $56,500. And you can borrow against your savings.

Both plans have the same tax advantages and withdrawal rules as an IRA. And both let you vary contributions -- or skip them entirely -- according to your yearly business needs.

Plus, you can contribute to a small business plan and a traditional or Roth IRA in the same year, increasing your potential to save.

You'll need a good accountant

Understanding the costs shouldn't necessarily dissuade you from working for yourself. On the plus side, many of these expenses -- home office, health insurance premiums, even a portion of the self-employment tax -- may be tax deductible. Just be sure you have a good accountant to help you take full advantage of all the deductions allowed.

An employment change like the one you're contemplating will take discipline in terms of work and money management. But it can also be exciting and rewarding -- both personally and financially -- as long as you go into it with your eyes wide open. Best of luck.


TOPICS: Business/Economy
KEYWORDS:

1 posted on 01/30/2013 1:04:54 PM PST by Kaslin
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To: Kaslin

I’m currently ‘working’ my way BACK to being my own boss. I cannot WAIT until I can make more income off of my farm again. For now, I need health insurance, and if I didn’t LOVE my current job so much and the company I work for, I’d have already done it.

I think ANYONE that has ANY marketable skills (growing food, landscaping, small-scale farming or small livestock, sewing, woodworking, windows, siding, roofing, cheese or soap making, plumbing, electrical, etc.) should be thinking SERIOUSLY about doing something on the side. I am a firm believer in multiple streams of income!

I currently have three - my day job, selling books online and the stipend I receive from my Dad’s estate for taking care of him, paying his bills, keeping him properly medicated (no easy task; stubborn old Kraut), grocery shopping, etc.

I LONG for the days when we’re all back to being a Butcher, a Baker or a Candlestick maker. Use your skills to barter with others. (I bake pies for a guy who does electrical work for me. I’ve swapped live laying hens for home-raised pork chops & roasts.) It’s a great way to keep Big Brother OUT of your pocket! :)


2 posted on 01/30/2013 1:16:22 PM PST by Diana in Wisconsin (I don't have 'Hobbies.' I'm developing a robust Post-Apocalyptic skill set...)
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To: Kaslin

Left out some bigg ones:
Selling expense. About 1/3 of your time will be spent finding new work/ customers.

Collections expense. The bigger the customer, the harder it is to get paid.
You may spend more time working on the AP department than the actual work you provided. Rule of thumb, the bigger the company and the fewer letters in stock symbol the longer it will take to get paid.


3 posted on 01/30/2013 1:17:16 PM PST by jonose
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To: Kaslin

Perhaps, but all your former costs, which you had to bear the complete brunt as a worker, becomes a tax writeoff when you own your own business. Many of those expenses, like telephone or heat would be constant costs anyway, employee or employer.

In that respect, you’re actually potentially saving a fair bundle over the year.


4 posted on 01/30/2013 1:17:42 PM PST by Jonty30 (What Islam and secularism have in common is that they are both death cults.)
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See my tag line. The ‘apocalypse’ is closer than you think! :)


5 posted on 01/30/2013 1:19:33 PM PST by Diana in Wisconsin (I don't have 'Hobbies.' I'm developing a robust Post-Apocalyptic skill set...)
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To: Kaslin

Working too hard. I don’t know any self employed people that spend less than 80 hours a week working. Great if you truly love what you do, but you better have a spouse that understands, and not much interest in entertainment.


6 posted on 01/30/2013 1:29:56 PM PST by discostu (I recommend a fifth of Jack and a bottle of Prozac)
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To: Diana in Wisconsin

You have got to be kidding. A live laying hen is worth a whole lot more than a pork roast, surely?


7 posted on 01/30/2013 1:35:38 PM PST by ottbmare (The OTTB Mare)
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To: discostu

The nice thing about running your own business is deciding which 80 hours a week you have to work.


8 posted on 01/30/2013 1:44:56 PM PST by Celerity
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To: Celerity

The nice part about being an employee that plays his cards right to get into the right company is you can not work a minute of over time in 6 years. Really I rarely even truly hit 40 hours, working for a company where everybody has something they’d rather be doing is very liberating.


9 posted on 01/30/2013 1:49:15 PM PST by discostu (I recommend a fifth of Jack and a bottle of Prozac)
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To: ottbmare

12 laying hens (raised from chicks by me) equaled 1/4 pig butchered. I was just giving an example. :)


10 posted on 01/30/2013 1:52:41 PM PST by Diana in Wisconsin (I don't have 'Hobbies.' I'm developing a robust Post-Apocalyptic skill set...)
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To: Celerity

People ask if I would go work for a large company again. In all seriousness, as a guy, I reply “The only good thing in working for a large company is that I could rest my head against the wall when I was taking a leak.”


11 posted on 01/30/2013 1:56:11 PM PST by 21twelve ("We've got the guns, and we got the numbers" adapted and revised from Jim M.)
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To: Jonty30

If you are self-employed working at home, you can write off a portion of the mortgage/rent and utilities at tax time. But you still have to pay them when due, whether your clients/customers are paying you or not. In setting up one’s own business it’s best to have on hand at least a year’s living and business costs.


12 posted on 01/30/2013 1:56:50 PM PST by EDINVA
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To: Kaslin

Ping for later


13 posted on 01/30/2013 1:58:24 PM PST by Alex Murphy ("If you are not firm in faith, you will not be firm at all" - Isaiah 7:9)
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To: ottbmare; All

You don’t win friends with salad!

http://www.youtube.com/watch?feature=player_detailpage&v=aM6xVQwIOYQ


14 posted on 01/30/2013 2:01:55 PM PST by Diana in Wisconsin (I don't have 'Hobbies.' I'm developing a robust Post-Apocalyptic skill set...)
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To: Kaslin

If it does’t work out for some reason most employers will consider self employment time as unemployment time. After 6 years of very successful self employment and 1 year of economy crash ending my self employment I found that out.


15 posted on 01/30/2013 2:13:54 PM PST by Domandred (Fdisk, format, and reinstall the entire .gov system.)
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To: Domandred
If it does’t work out for some reason most employers will consider self employment time as unemployment time.

Many potential employers won't consider those who've been self-employed. Too independent for their taste.

16 posted on 01/30/2013 2:29:46 PM PST by Night Hides Not (The Tea Party was the earthquake, and Chick Fil A the tsunami...100's of aftershocks to come.)
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To: Kaslin
You pay all Social Security and Medicare taxes

Here's a newsflash: you're paying this already, even as an employee. It comes out of the pool of money allotted for your position.

17 posted on 01/30/2013 2:34:14 PM PST by Disambiguator (Gun ownership is pro-life.)
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To: Diana in Wisconsin

Do you have any daughters who were taught the same? ;)


18 posted on 01/30/2013 2:48:46 PM PST by JCBreckenridge (Texas is a state of mind - Steinbeck)
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To: Domandred

Yeah, I ran into that with one employer. So I revised my resume after I left my position with him. He confronted me, and I told him that this was the reason why.

“You aren’t willing to consider my *actual* experience as valid and pertinent to my skills and work experience. So I see no reason why I cannot change the dates of my work history, to better reflect my actual skills and experience.”


19 posted on 01/30/2013 2:52:31 PM PST by JCBreckenridge (Texas is a state of mind - Steinbeck)
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To: Disambiguator

Here’s a newsflash: you’re paying this already,
= = = = = = = = = = = = = = =
That is correct...back in the early 80’s when the Private Sector got around to providing Health Ins, they didn’t ‘like’ it as my wife was carrying the family plan (worked for US GOVT) and I opted for the cash.
So, my ‘bennies’ were a company vehicle (I didn’t ‘own’ a car or pay insurance for about 25 years- back then they didn’t ‘charge’ you because you were in the house. It was my car but my wife drove it and we only insured her.) cash for Ins and my ‘bonus’ reflected that I didn’t take vacations.
In the Asphalt end of it so summer vacations were out.

OF COURSE when Self-Employed YOU don’t get a check if the money isn’t there...same as if you are working for someone BUT at least you can ‘yell’ at the boss/owner if your check isn’t there...on your own, you are on your own.
AND no Workmens Comp, Unemployment - even though YOU pay into it if you have employees.

ALSO you can claim to be ‘your own boss’ BUT IN REALITY, the client is your boss and you are subject to the ‘whims’ of your employees....


20 posted on 01/30/2013 2:54:55 PM PST by xrmusn (6/98 "It is virtually impossible to clean the pond as long as the pigs are still crapping in it")
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To: jonose

I’ve been self-employed for 25 years, and I’ve generally found the opposite: large corporations are reliable in payments, small ones are the ones that may have cash flow issues and stall on getting a check out.


21 posted on 01/30/2013 2:57:23 PM PST by 9YearLurker
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To: JCBreckenridge

Sorry, but no.

But when you find her, do not hesitate for an instant; gals like us don’t last on the open market for long, LOL!


22 posted on 01/30/2013 3:10:55 PM PST by Diana in Wisconsin (I don't have 'Hobbies.' I'm developing a robust Post-Apocalyptic skill set...)
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To: Kaslin

You are your own benefits provider

Not if you spouse is working and you qualify under their plan.

And what about sick days and vacation pay? When you work for yourself, there’s no one to cover for you.

um... you stay at home or leave when you want, that’s one of the great things about working for yourself.

You pay all Social Security and Medicare taxes

um... no. No you don’t pay ANY social security or medicare taxes! that’s one of the BIGGEST reasons to work for yourself. And the best part is... you will still get BOTH by appling for the benefits under your spouses name.

The cost of doing business can increase your bills

yawn, big deal, and the small extra costs are tax deductable.

Retirement savings is up to you.

um... yeah that’s sort of the whole point! and you’ll have a lot more money to save by working for yourself.


23 posted on 01/30/2013 3:18:26 PM PST by TexasFreeper2009 (Obama lied .. the economy died.)
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To: jonose

bah, a good business generates all the new business it needs through referals from happy customers.

And as far as getting paid goes.. um.. might want to try getting paid in advance. It sort of solves that issue.


24 posted on 01/30/2013 3:21:07 PM PST by TexasFreeper2009 (Obama lied .. the economy died.)
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To: Diana in Wisconsin

***** “12 laying hens (raised from chicks by me) equaled 1/4 pig butchered. I was just giving an example. :)”

We have tons of Wild Hogs round here ... they don’t lay eggs... so laying hens are my pick.

TT


25 posted on 01/30/2013 3:43:07 PM PST by TexasTransplant (This needs to go viral http://vimeo.com/52009124 please watch it)
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To: TexasTransplant

Wild hogs scare the cr@p outta me! Ran into one near a dumpster while stationed in Germany in another lifetime.

I was IN the dumpster before he spotted me! *SHUDDER*


26 posted on 01/30/2013 4:19:43 PM PST by Diana in Wisconsin (I don't have 'Hobbies.' I'm developing a robust Post-Apocalyptic skill set...)
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To: Kaslin

Working for onesself is the only way to go.Its up to you how much money you want to make and if you love what you do then you never work another day as long as you live.Its got its good days and for crap days for sure.


27 posted on 01/30/2013 4:33:59 PM PST by HANG THE EXPENSE (Life's tough.It's tougher when you're stupid.)
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To: TexasFreeper2009

You pay all Social Security and Medicare taxes

um... no. No you don’t pay ANY social security or medicare taxes! that’s one of the BIGGEST reasons to work for yourself. And the best part is... you will still get BOTH by appling for the benefits under your spouses name.”””

Don’t know where you get this idea.

Form SE is filed with your 1040 income tax forms & you are the employer & the EMPLOYEE-—you pay all of it.
Granted, you pay on your net income, not your gross, but you still must pay ‘both halves’.


28 posted on 01/30/2013 6:57:01 PM PST by ridesthemiles
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To: ridesthemiles
I have no idea what you are talking about.

I have run my own business for over 20 years and I don't pay a dime in social security or medicare, because I don't earn a salary and don't even receive a paycheck, I earn my income in the form of all the profits generated and it is reported as such.

Any business owner who is paying social security and medicare is doing so voluntarily because they want to collect, and if you don't pay into the system you can't collect. BUT if they like me have a spouse who has a job that is paying into the system, they can collect both as from their plan, the same as a housewife can collect off her husbands plan even though they never paid into the system.

29 posted on 01/30/2013 9:16:04 PM PST by TexasFreeper2009 (Obama lied .. the economy died.)
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To: Kaslin; RIghtwardHo; Reaganite Republican; Clintons Are White Trash; HerrBlucher; mgist; ...
+

Freep-mail me to get on or off my pro-life and Catholic List:

Add me / Remove me

Please ping me to note-worthy Pro-Life or Catholic threads, or other threads of general interest.

30 posted on 01/30/2013 9:23:04 PM PST by narses
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To: Kaslin; RIghtwardHo; Reaganite Republican; Clintons Are White Trash; HerrBlucher; mgist; ...
+

Freep-mail me to get on or off my pro-life and Catholic List:

Add me / Remove me

Please ping me to note-worthy Pro-Life or Catholic threads, or other threads of general interest.

31 posted on 01/30/2013 9:23:35 PM PST by narses
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To: Night Hides Not
Many potential employers won't consider those who've been self-employed. Too independent for their taste.

Always mention that you know how to cut costs without cutting corners. When you're your own boss, it is a valuable skill.

32 posted on 01/30/2013 10:31:58 PM PST by Smokin' Joe (How often God must weep at humans' folly. Stand fast. God knows what He is doing)
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