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Working for Yourself Maybe Costly

June 29, 2015
Plain English Version
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One-man band in a New York City subway station. Photo by WWWard0

It is tempting to go to work for yourself. You have no boss, you decide your hours, and you may be able to work from home. More and more Americans are forgoing regular paychecks for uncertainty and independence.

There are things to consider.


The biggest difference is in payroll taxes. These are amounts you pay into Social Security and Medicare. Employers pay part of what you pay. An expert says, “It is a shock to people the first year they do this.” He advises people to set aside a third of their self-employment income for federal, state and local taxes.


Many employers pay all or part of your health insurance cost. Now, it is up to you. You will need health insurance. How much it will cost depends on your income, health needs and whether you are a family or a single person. The Affordable Care Act is not easy to understand.

Disability insurance is also important. It pays you if you cannot work because of an injury. Experts say to buy it before your quit your job. It may be harder to get if you are self-employed.

Many insurance premiums can be deducted from your income. It does not mean the insurance is not a cost to you.


You cannot rely on social security to make you comfortable in retirement. Most employers offer a retirement plan. Usually, these are called 401(k) plans. Most employers contribute to them. You won’t have an employer to make such contributions.

The law limits employer contributions to 401(k) plans. However, the self-employed can put away much more money in a 401(k) plan. A 401(k) plan can also save you tax money either when you pay in or take out the money when you retire.

Vacations and sick days are on the mind of the self-employed person. Protecting your assets and deducting sales taxes and other business expenses are important matters. The kind of business you form is important. You probably need an accountant.Source:

The Wall Street Journal June 25, 2015

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