As the business landscape shifts, so does the knowledge required to safely make a living in your respective field. Self-employment has just as many positives as it does potential roadblocks for career progress due to just how complex a business can be when playing the part of both a boss and employee.
Your Tax Rate Depends on Your Business Designation
Local laws will almost certainly vary, but by and large, you’re going to get better results during the tax season by carefully selecting how you register your business. Filing as a self-employed person can have lower returns than filing as a corporation, while filing as an LLC can be a complete non-move in the realm of changing your tax status. Speaking with a tax expert is the quickest way to sort out which category your business falls under, and you’ll want to file as a corporate entity sooner rather than later to avoid losing personal assets during potential lawsuits.
Self-Employment Health Care Still Has Requirements
Forging your own path in the business world doesn’t absolve you of the responsibility of health care as far as the United States is concerned. Seeking insurance means finding individual policies, as self-employed individuals are not allowed to use the Small Business Health Options Program (SHOP) as it was designed for companies covering employees rather than an individual purchasing insurance for themselves. It is important to note that you must pay into Medicare to receive its benefits, and you may not be automatically qualified for unemployment benefits during an injury, so make sure you check your local laws.
Self-employed workers are roughly half as likely to require or seek medical care as compared to wage workers, which is a nice silver lining to look forward to.
Garnished Wages Become More Dangerous
With any luck, you’ll never run into a situation where you fall behind on your taxes and draw the ire of your governing body to the point of having your wages garnished. In a job where you draw a steady wage, this generally comes in the form of losing a percentage of your non-essential funds every month until your debts are squared away. It’s an unfortunate process, but it will generally leave you enough money to live off of and not incur many hits to your credit score.
Being self-employed completely changes this dynamic. Your wages cannot be garnished, but you can still be sued over owed funds and money in your bank account can fall prey to being seized to pay your debts. In the process, you might take multiple hits to your credit due to non-payment on top of losing larger portions of your money with less favourable scheduling of fees, which can throw you into deeper debt. Combined with your now-harmed credit score, losing wages while self-employed can lead to financial disaster. Vigilance is key when you only have yourself to answer to for financial errors.
Self-Employment Is Up, but Not All Good
Most of this advice relates to those who are voluntarily self-employed, but there is an unfortunate string of events recently in which employees for various companies are being tricked into contractor or self-employment deals that negatively impact their wages, benefits, and protections as a worker. In a worst-case scenario, you can wind up owing massive amounts of back tax if you should wind up audited due to your status as an employee being technically incorrect. If you feel your place of employment is pushing you into self-employment to dodge taxes, they’re likely doing it to pass those taxes off to you.
As long as your self-employment is a move made for personal freedoms and not one brought about by corporate mismanagement, there’s plenty to be done to keep yourself sorted financially and protected from poor decisions or a lapse in funds. Keep an eye on your bank account and make sure your employment falls within local laws, but always be vigilant for those trying to turn your need for flexibility into an unexpected monetary pitfall.Opinions expressed here by Contributors are their own.