Week 29: Grow Income, Tactic 8

What can you do this week?

• Going self-employed when you’ve never run a business or had experience in this space can be scary.

• Begin research and planning into what the numbers need to look like for you to be earning more self employed.

• Growing income may not be your only motivator. Being self-employed can provide freedom, flexibility, reignite passion for your work, allow you to hand pick your team, and allow for creative control.

Why Self-Employment?

• This visual is a rearrangement of Robert Kiyosaki’s cash flow quadrant.

• To be clear, this post is about sole proprietorship self-employment.

• Most Americans are employed by someone else. If you’re looking to grow your income earning potential and control more of your career, self employment may get you there.

• It will take more risk to get that return. Risk can mean lost time or capital, or both. It can mean you’re on the hook for your own costly mistakes.

• For that risk however, it could help you out earn your employment income potential.

• It could also lead to other ventures that create significant wealth. Like any business venture, you have to sell to create opportunities.

  

  More Potential Reward Means More Responsibilities

• Life and money are full of trade offs.

• When you enjoy the fulfillment that comes with controlling your destiny, you also pickup some less sexy responsibilities.

• Below are just a few that are very important to understand about you finances as a self-employed individual.

  

To learn more about my services, checkout my website and schedule a call.

Taxes: It’s Up To You

• The days of just completing your W-4 once as a new hire or annually at tax time are over when you go all in on self-employment.

• If you expect to owe more than $1,000, you need to make quarterly estimated payments to the IRS and State

  • There are additional taxes to contend with as well.

    

    +

Self-Employment Tax

• Being self-employed means you now are responsible for self-employment tax.

• It’s not all bad however. You also can now deduct things like business expenses, qualified business income deduction, and part of your self-employment tax.

Avoid Penalties

• As you learned above, you have no employer to withhold income taxes so you pay quarterly estimated tax payments.

• If you don’t withhold enough, there could be an underpayment penalty you will have to pay.

• The amount you need to pay to avoid this potential is known as a Safe Harbor amount.

• Pay 90% of current year tax due OR 100% of last year’s tax due to avoid penalty.

• Any underpayment of tax due exceeding $1,000 could be subject to an underpayment penalty.

Create Your Self-Employment System

• Part of planning is setting up your own system for staying on top of these basic financial priorities.

• Below is one simple example how someone could manage their quarterly estimated payments by utilizing monthly transfers and a business banking account.

You Are Your Benefits Department

• Before you take the leap, you definitely need to understand what you’re walking away from. By waiting out some benefit vesting, bonus payment, or other compensation due, you could venture more securely into full self-employment.

• You also have many ways to save for your future without a company sponsored 401k too. An advisor/planner can be a great resource here as well.

Cash Is Your Friend

• Having solid cash reserves can remove a huge weight off your shoulders.

• Cash savings can smooth out your early years venturing into self-employment.

If you’re not a subscriber already, hit that button below to receive new tactics each week to help you grow income, reduce expenses, and save more now!

If you know others who would benefit from this content, please share the newsletter URL link on your social channels!!