“The only limit to our realization of tomorrow will be our doubts of today.” —Franklin D. Roosevelt
These days, the 9-to-5 (“what a way to make a living,” in Dolly Parton’s famous words) is no longer the default setting for the American career.
In fact, in a recent survey, 59 percent of people said they would become entrepreneurs if they had the opportunity.
If quitting your 9-to-5 has been on your mind, I want to help you understand what your new relationship with the IRS would be if you become your own boss.
Ultimately,the W-2 system hides most of the tax process from you. Self-employment puts that process in your hands. You gain flexibility and deductions, but you also take on the responsibility for withholding, recordkeeping, tax deposits, and planning.
As a W-2 employee, you’re largely a passenger in the tax system.
- Your employer withholds federal and state income tax
- Your employer splits Social Security and Medicare with you
- Payroll deposits the tax
- You get a W-2 at year end
- You generally file one individual return and reconcile what was already paid in
As a self-employed taxpayer, you’re running the tax side yourself.
- No one withholds taxes for you
- You pay both halves of Social Security and Medicare through self-employment tax (15.3 percent of your adjusted net earnings) on top of your regular income tax
- You can typically deduct 50 percent of that self-employment tax on your Form 1040, which lowers your overall taxable income
- You make quarterly estimated payments, due in April, June, September, and January
- You track your income and expenses
- You need records to support deductions for ordinary and necessary business expenses
If you’ve been considering leaving your 9-to-5 to go out on your own, don’t let all the tax responsibilities intimidate you.
That’s why we are in your corner.
We want to help make your entrepreneurial vision a reality without the stress of tax obligations weighing on you.
So, let’s sit down and make a plan. I opened with talking about our membership plans, and this is an example of where stepping back and having structured time to step back and think strategically can make a differcnce. We’ll talk about when your W-2 income will stop, what your new business will realistically earn, and what we should do now so that your first year of self-employment doesn’t end with a nasty April surprise.
