These three financial components are crucial to starting your business and taking advantage of perks like self-employed retirement accounts.Thanks to the internet, it is now easier than ever to start your own business. A few google searches will tell you everything you need to know to get your business up and running. There are an abundance of free, online courses to guide you through specific topics, and social media has created an affordable place to market your business to your target audience. We often hear about the perks of being self-employed, “Oh, the freedom, the creativity, setting your own hours, pursuing your dream!” Yes, those are all great things, but what about the less glamorous aspects of running a business? Paperwork.
If you go about it the correct way, being self-employed normally means a significant amount of paperwork you have to worry about. You have to decide to operate as a sole proprietor, a partnership, a corporation or become incorporated as a Limited Liability Company (LLC) and file all of the paperwork involved to be recognized as a business. Once you are recognized as a business, you need to file for an EIN (Employer Identification Number) from the IRS. You can apply online, for free. This is basically a social security number for your business, used for identification and tax purposes. When you have your EIN, you will also need to consider opening a separate bank account. Keeping your personal expenses separate from your businesses is essential, and will make your overall organization much easier. Taxes. Going from a W-2 employee to being self-employed means you need to be prepared to manage your own tax burden. Nobody is going to be withholding taxes from your paycheck (that’s your job now) so it’s important to not spend everything you make, and to keep accurate records of what’s coming in and what’s going out. If you get in the habit of putting aside 25-30% of your income, you will be better prepared for paying your taxes owed come tax time, but this isn’t easy to do for everyone, and definitely takes some discipline. In addition to setting money aside, you also have to navigate the ropes of actually paying your taxes. This will vary depending on how your business is set up and the state you’re in, but most will find themselves paying estimated quarterly taxes and possibly quarterly payroll taxes. Retirement Accounts. Waiting to establish, or never establishing a retirement account is one of the biggest mistakes self-employed people make. Currently, the primary place Americans are saving for retirement is in employer sponsored contribution plans, things like 401k’s and 403b’s. If you are self-employed, you aren’t going to have access to an employer sponsored plan… but you have the ability to set one up for yourself. The best way to ensure a you have a retirement that doesn’t involve solely on living off checks from the government, is by starting as soon as you can. The longer your time horizon is for saving, the more impact all of that compounding interest in your account will have. Putting away money consistently in the decades leading up to your retirement will give you a much better quality of life when the time comes to begin drawing income from those accounts. To learn more about establishing your own retirement account as a self-employed individual, check out my free online course; Crash Course in Retirement for Entrepreneurs, what you need to succeed without an employer 401k. At the end of the day, being self-employed means taking control of your life, your work, your finances, and your future. If you are overwhelmed at the idea of establishing these accounts and investing on your own, you might consider working with a financial advisor, someone who will open the accounts and manage the investments inside on your behalf. If you would like to learn more about a fiduciary advisory relationship, click here! (link to services) If you have any questions, please feel free to reach out to me at alicia@friendoffinance.com. To learn more about saving for retirement and open your own account, enroll in my FREE online course: Crash Course in Retirement for Entrepreneurs. Sources:friend-of-finance.teachable.com/ IRS Business Checklist. https://www.irs.gov/businesses/small-businesses-self-employed/checklist-for-starting-a-business IRS. Apply for an EIN. https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online Congressional Research Service. Worker Participation in Employer-Sponsored Pensions: A Fact Sheet. Updates 04/30/2019. https://fas.org/sgp/crs/misc/R43439.pdf Social Security Administration. Social Security 2019 Trustees Report. 04/22/2019. https://blog.ssa.gov/social-security-2019-trustees-report/
0 Comments
Leave a Reply. |
Archives
April 2021
Categories |