Let’s talk about finance. This word can mean many things. Specifically, let’s talk about finance and being self employed. A lot of people think that being self employed is a “cake job.” They don’t look beyond the fact that you own your business. They don’t look into the financial side of being self employed. Yes, there are the obvious perks like making your own hours, but there are many other things involved in self employment.
Start Up Costs
People have start up costs associated with being self employed. You don’t just wake up one day and decide to be self employed without having to put some sort of capital into it. This could be a small amount, or it could be thousands of dollars. It’s all going to depend on the type of business you are starting. Some people looking into self employed loans to get them started. The costs to start a business also vary depending on what equipment is needed to get started. If you are making shirts to sell, for instance, you will need the proper equipment to do so. You need an inventory of blank shirts, as well as the cutting machine for the vinyl, a heat press to adhere the vinyl to the shirt, etc.
Continued Operating Costs
Once you have gotten your business started, you then have to think of the continued operating costs. You will have monthly costs such as utilities and materials. If you print, you will have ink cost, as well as the potential of having to replace printers and such. Now, if you are running your business out of your home, you can claim part of your monthly house payment and utilities costs as business expense on your taxes. We will discuss this further in the next section. You should have a dedicated bank account just for business expenses, so that you can keep them separated from your everyday household expenses.
Taxes When Self Employed
Self employment tax is important. This is a tax rate, currently at 15.3%, that consists of social security tax and Medicare tax. 12.4% is social security tax, while 2.9% is for Medicare tax. This is something that you need to pay quarterly or monthly throughout the year, or you will owe it all during tax season. The 15.3% should be taken out of all earnings you get as a self employed person.
While on the subject of taxes, lets discuss what you should claim on your taxes as business expense. There are a lot of things you can claim. The biggest one being utilities and house payment expense, as it relates to your business. This will be calculated by how many square feet your house is, and how many of those square feet are used for business. You can also claim your cell phone bills, or a part of them, if it is used for business. Do you travel for your business? If so, you can claim mileage and gas expense, and potentially food expense while you are traveling.
It’s important to keep receipts for everything, even if you aren’t sure it will be claimable. Sometimes you get surprised by what you can claim. It’s just better to keep all receipts pertaining to your business. There are a lot of receipt organizers out there that would great to keep you on track!
"Time spent with cats is never wasted." ~ Sigmund Freud