3. Don’t forget about taxes.

Working for yourself means you’re responsible for paying your own taxes. No more having money automatically deducted from your paychecks for good ol’ Uncle Sam. As a freelancer or an entrepreneur earning more than $400 a year, this means you are responsible for paying a 15.3% self-employment tax. This money goes to cover your social security and Medicare taxes, which traditionally, is half paid for by your employer, while the other half comes out of your paycheck. But as a freelancer or a business owner, you’re considered both the employer and the employee. You can either choose to do your taxes yourself, paying monthly or yearly, or hire an accountant to do them for you.

On the flip side of this, however, is the good news that as a freelancer or small business owner, you get to claim certain tax deductions so the amount you’ll be paying to the federal government will be lower. In essence, a tax deduction is typically an expense a taxpayer incurs that can be subtracted from his or her gross income to figure out how much he or she owes at the end of the tax year. These deductions range from office and business supplies to office space and travel expenses to insurance. Here’s a great resource of what you can and can’t claim in your tax deductions.

4. Don’t forget about insurance and retirement.

Speaking of insurance, now that you work on your own, you’re likely no longer covered by your employer when it comes to health and life insurance. And you’ll have to start your own  401(k) or another kind of retirement account since your employer won’t be contributing to that anymore, either. If you’re married, you can join your spouse’s health insurance plan. If you’re not, however, it’s best to research available plans. For life insurance, you can go through a membership organization, such as NFICA, to find great plans, or go through your own bank. The same goes for retirement plans. And for health insurance, research which plans best fit your income, as it can get expensive for small business owners.

5. Cover yourself with contracts and other legal business aspects

As a small business owner or freelancer, the only protection you have against possible litigation is yourself. That’s why you should thoroughly research legal factors when it comes to you and your business. One way to do this is by creating contracts between you and clients and subcontractors, specifically citing the amount of work you or they will be doing and for how much. This helps set expectations for both parties.

You can also set your company up as a single-member LLC, which shields your personal assets from liabilities associated with your business. It’s one of the best ways to protect yourself and your family financially if you’re threatened with legal action.

Though this doesn’t include everything you need to think about before jumping into working for yourself, it’s a good start.

Another great resource for entrepreneurs and freelancers is the NFICA. Becoming an NFICA member is inexpensive—at only $10 a year—and is a great way to save on travel, office supplies, insurance, and computers and electronics, along with our newest benefit HealthiestYou. You’ll also get our newsletter, The Can-Do Quarterly, which offers news,  tips, and important resources for independent contractors.

What are you waiting for? Take your first step toward entrepreneurship today by joining NFICA.

 

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