Being self-employed ...
 

There seem to be a lot of self-employed (if I could spell entrepenour I would have, lol) people here ... so this is where I come for answers.

I MIGHT have the opportunity to become a "sub-contractor" of sorts making about the same money annually but losing, health benefits, 5% 401K match and other benefits. BUT, I would only work 3 days/week and 8 hours each day. Overall I would obviously lose money, but hopefully DW will get a job with healthcare in the next year or so.


Also, my free time is very valuable to me but I need to stay afloat of course. I have ideas of other ventures to start in my free time but I don't want to calculate that into this because it might not work out.

What to do? I guess I would owe 7.5% extra in SS tax?? Are there any other pitfalls? Other expenses I'm overlooking?

"Fortune favors the bold."

"No risk, no reward."

"No guts, no glory."


I could go on with the cliches, but I think you already know what I'm trying to say.

I think you've identified the major financial/benefit pitfalls, and only you can evaluate how that will affect you and your family. If I were in your shoes, I'd want a business plan mapped out to make up (actually more than make up) for the financial downsides with the time freed up from the change. My Dad was self-employed, and he pushed all of us to get jobs with retirement plans...'cause he didn't have one. Best wishes for you and your family in whatever you choose to do.

Yes you incur the extra 7.5% however you can deduct 1/2 of the self-employment tax (not a credit unfortunately so you only save whatever tax bracket percentage you are in). Downside/Upside:
1 - no benefits unless you purchase your own. If you are young and in good health, a HDHP with a HSA can be a decent deal. High deductible health insurance plan (and your premiums are deductible on the 1040 with some caveats regarding spouse benefits whether taken or not) and fund your HSA with tax free dollars. You don't have to pay for a prescription out of your HSA monies, you can pay out of pocket today and file for reimbursement if you want years down the road (so my benefits department tells me). Just keep receipts for IRS proof and reimbursement documentation.
2 - fund your own retirement - a SEP-IRA is a low cost option (fee wise that is) - a Keogh costs a lot of money and tends to tie your hands. If no employees, things are easier as you don't have to worry about funding employee retirement.
3 - additional paperwork if borrowing money - copies of tax returns etc. and it could be harder to borrow or cost you a higher rate.
4 - sole proprietor is low/no cost for tax purposes but you need liability insurance so you don't lose everything you own if you get sued. Or you can be an LLC (costs money to do and bookkeeping is stricter).
5 - vehicle insurance may go up but you can deduct maintenance, gas, insurance to the extent it applies to your business not personal.

You must show a profit every 3 of 5 rolling years to be considered in business vs. a hobby (unless breeding racehorses, the rich man's loophole I call it).

Best of both worlds is a spouse with a steady paycheck and benefits. Plan your living expenses off the 'stable' income (if there is such a thing these days) and don't count on business money for living expenses at first (or ever if you can).

The 15% SSI can be a killer at the end of the year, especially if you dont have many deductions.

The only thing that I can think of that hasn't already been said is

Some people that you work for may require you to have workmens comp. In PA it is impossible to get workmen comp if you have no paid employees.

Being self employed has it's pros and cons.

I can tell you, your not your own boss. Instead of answering to one boss on a regular job, you answer to many bosses (your customers).



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I did it for 6 years and loved every minute of it, but the health insurance I could afford was TERRIBLE. That is the biggest downside.
Be aware you would need to pay your taxes quarterly - based on estimated income. The extra 7.5% sucks - but in my case I found it WELL worth the freedom it was buying me. I would do it again in a heartbeat.

Be careful that you are not being asked to be in an illegal position - some "subcontractors" really should be paid employees by law and it would be wise to stay out of trouble with that.

..................The company or person , you are subcontracted Too , will send you a 1099-MISC (miscellaneous income) at the end of the calendar year . You can REquest them , to Withhold a certain % of your gross income and deposit it with the IRS just like you were an Employee . OR , you can contact the IRS and request from 1040ES....quarterly estimated tax deposit forms and make the deposits yourself . Either way , your total deposits will be split up between your income tax owed and the amount of SS owed as well based upon your net income from self employment at the end of the year . , fordy... :)

You guys are quick today ain't ya!

To clarify my specific circumstance ... It would be my doing. I could make almost double my hourly wage by doing this. Our client wants me to stay on this project (15 year life expectancy) and wants to keep our company too. I have pretty much had it with the company I work for. I work on this project 3 days a week. The other two in the office is what I can't stand. My company makes so much money here that they could easily afford to almost double my wage and still make more profit as they would on most other jobs.
I was going to approach them about making me a sub, raise my hourly rate, and only work on this project ... 3 days a week. I'm worried though ... about losing my job altogether. Our client would "prefer" I stay but doesn't really want to get in the middle of it. Wishy-washy.

..................Addendum........Keep very good records on your milage , repairs\maintenance , insurance , parking and toll fees , etc. , for your vehicle as you will beable to calculate a "milage deduction" based upon business miles . Three numbers are involved.... total miles , personal miles and Business miles . Or....tot.miles minus personal miles = business miles . This also determines the % of business use of your vehicle as this information will be presented too your tax preparer when they complete your '07 tax return .
.................Also , keep very good records on any and ALL expenses that you incur in reference too your self employment job . , good luck , fordy... :)

..................Before , you actually , quit , get several quotes on the Cost of Health Ins. It is Tremendously expensive when purchased by a small business person !!! You mayBE better off staying as an employee if you can putUp with your employer BS . , fordy... :shrug:

Or timing it when your spouse can get insurance...or stretching cobra benefits out for as long as possible. Cobra can be expensive, but usually a better deal/benefit than you can buy as an individual.

15% minimum for income tax.
17.5% for ss and medi. tax
7.5% state income tax in NC. Don't know about PA.
SUTA and FUTA on top of that.
Deposit 45% of all your income into a special account for taxes, or you will fall short at tax filing time.
Can you live on 55% of what you will make and live as well as you do now?
Plus the two days office work will turn into three days office work at home.
Plus the insurance???

Not to be a wet blanket here........but I would not leave my job with health insurance until the Wife had her job WITH health insurance. Then go for it

Non-compete rules might be an issue so you should check into that too.

talk is cheap , Ive seen many folks fall for the
"I'll give ya twice what your making now ploy" Ive also seen a number of them loose their shirt in the process . I fell for it myself , thinking I needed a real job rather than doing my own . Last year I worked six months for a company and just from contracts turned down I figure I lost $18,000.

Do your math. Compare full benefits pay 401 match etc for 3 days work + 2 days yucky work to 3 days work +(yes!) 2-3 days managing your business work (okay maybe not but budget for this!). DON'T FORGET vacation- if they'll only pay you for the days you work multiply what you charge for a week's regular work to give you same annual pay with however many weeks off you currently get or you wish to get. Factor in any required insurance and cost of disability insurance (even if you don't purchase it- which you should really consider if you qualify for a policy- wish I could qualify!). Decide how much you'd need to get, I would say, same amount total despite not working the 2 yucky days, because you are now taking risk of the work vanishing overnight and of getting sick and no longer getting paid and doing a lot of the paperwork to manage yourself (off the personnel officer's shoulders now).

I much prefer self-employed because of the Keogh- which I set up for free (no fees either) a while back with Vanguard. Dunno if still an option or if they might now have limits on amount expected but call and ask them. But I sock(ed) away 20% of my income net (after subtracting) expenses and the employer's share of the SS taxes. Best pension option I've ever had. Wish I had more income to put more into my keogh- ie wish our family income were more from me and less from DH with sum same. I also like deductions for expenses- dunno about your line of work but DH and I do same sort of stuff- if his work pays for his work required stuff great it's free to him, if not he can't deduct it unless it's over 2% his wages and we itemize. Me I subtract every expense on my schedule C- including mileage from my home office if I work at multiple sites- and unusually enough have had a loss in a few years recently (when I'm not working at all but still paying for licenses and education/exams) ie my work expenses reduce the tax we pay on our total (just DH's those years) income when my expenses were more than my income.

PM me if there's something you'd like me to better /more explain.

There is probably more to your circumstances that we're privy to but this situation would bother me, before being a contractor I left jobs even though the company wanted me (and would have worked a similar situation) because I didn't feel right about doing what you're lining out. Again I don't know all the details but in one situation the head of the company found out I was leaving because of the shaft from my contracting company and offered to double my pay rate, give me full per diem and 4/10 hour days with overtime and give me a 1099 directly from his company if I wanted it.

On the insurance issue I'm not sure of your circumstances but we've gone without before (I'm a contractor so if I can get much more by doing 1099 I do it) and it really wasn't that big of a deal. This will probably rub some people wrong but we got catastrophic only coverage through Mutual of Omaha and paid everything else out-of-pocket using a discount card. Some of our existing doctors worked with us and gave us a cash rate but others didn't. This isn't a walk in the park and is more difficult than just slapping an insurance card down however we did just fine. We did have some unexpected expenses hit but nothing too extreme. We did this with 4 kids but everyone is fairly health and no expensive ongoing treatments.

I'm in a transitional phase where words are concerned..... I used to be "self employed" but now I realize I am just a bum, grazing in the green fields of the underground economy.

I will work for food, trade, or interesting used objects.... or cash... or all of the above

when I have to.

Health insurance. One of you needs to be getting it 'from work'.

Liability insurance.

Cost of tools - don't need to know what you are doing maybe all on-line, but you have everything you need, or will you need to buy stuff the company now provides? Can look like little things, but does add up.

The taxes do add up. It's a bigger bite when you see the bill than you realize now.

The advantages - you can see those. I understand them too. Cool. :)

My worry would be, if you jump ship and are basically a self employed contractor for this one business - what happens if they close/sell out/ change direction/ drop you?

What is your future - both short term & long term?

I would be more comfortable doing sub-work for 3-4 places. Not have all your eggs in one basket tied to the one company. You are on the outside now, real easy to drop you in no time flat when someone comes along & says they will do the work in 2 days & onlt charge 3/4 of what you are charging.... (that is kinda what you are saying to your current employer, so would be fair for someone else to do the same to you....)

Free enerterpise, I'm not bothered by it, but you have all your eggs in that one basket..........

--->Paul