I have owned my business for the past 10+ years, which makes me essentially self employed (and about half crazy ) However, I have been a w-2 employee as far as salary and witholdings. I walked into an established business that had employees who did most of the book work. Deposits went through the corporation, and expenses were paid before I saw a dime. At the end of the year I will be selling my business that has provided a huge safety net for the last decade. I will be my own corporation without a book keeper to figure things out for me unless I want to spend the extra money to hire one. I’m hoping my experience is enough to make the right financial decisions to avoid any huge mistakes. This is my list for going from employed to self employed. Am I forgetting anything?
On paper my income should be higher than the salary I have been paying myself. I have three jobs lined up. One with the government, one as employee for the new buyer of my business, and one with another optometry office. At my old office, I will still be a w-2 employee, but the other two jobs are 1099 contract positions. My thought on having three different employers is that if one goes South, I will have others to fall back on. Because I don’t have office overhead, I can work fewer days/hours and make more money
The downside of being a 1099 contract employee is that I will have to fork over more in taxes since no one will be witholding them from my paycheck. I honestly am not sure how much I will have to pay because we now have rental income and expenses that will hopefully offset some of the tax burden. I plan to save 35% of the contract income for taxes at this point. That may change if tax rates go up next year
If you are going to be self employed there are many reasons to incorporate. I have decided to stay as an S-corp because that was the set up of my old business, and I am familiar with the rules. With this set up I will have to have officers and an annual meeting. (My husband makes a great Vice-President.) I’ll also need to obtain a business credit score to keep personal finance and work separated.
I have not been as good with budgeting as I should have been in the past. With owning a successful business, I have been able to take out dividend income to supplement salaried pay. With this option gone, we have to really make a plan and stick to it.
With trying to pay off credit card debt, we’ve already cut out most of the fat from our spending. You can never do too much, though. One reason I love the personal financial community is for the great ideas and suggestions that I read on other blogs. I called our internet provider this week. We only have one provider that services our area, so I’ve never had much luck with negotiating rates. The company just got bought out by another one, so I though I’d try again. I was pleasantly surprised to learn that all I had to do was ask if they had any promotions. The phone representative told me they could give me 50% off my rate AND increase my internet speed for the next 12 months. She also said to call back in year and ask about promotional rates again. Even if they don’t extend it, this still saved me about $240 over the course of the year. I really encourage everyone to try this if it’s been a while since you called. You might get no fifteen times, but the 16th call could save some serious money.
I’ll have to set up a new retirement plan in the upcoming year. I haven’t studied it enough to make a decision, but it seems that I can either set up my own 401 K or a SEP retirement plan. I also hope to use Roth IRA’s plus save for more rental property. I’d love any ideas from people who have experience with these plans.
I’m sure there are a hundred other things I need to do before the end of the year, but these are the things I can think of so far for my move from employed to self employed. What am I forgetting?
Have you ever set out on your own for employment purposes? Did you make any mistakes?