Self-employed: Business Owner's Tax Advantages

Advantages Part 1

Discovering the real value of money
I remember when I got my very first paycheck from my cashier job at Savon Drug store and my first commission check when I was paid 100% commission in sales. Each check made me proud and excited.

But in retrospect I realize there was a slight difference in how I regarded that money. With my employee paycheck I was glad to know this money would pay for my bills and I was saving for a used car. With my self-employed commission check. I appreciated the entire amount a lot more because I felt I had worked really hard and it was a much larger check.

I've always been very good at managing money, so when it came from self-employment. I was spending continued to spend smartly and save for a rainy day. I understood there might be months of lower earnings. However, once you get a check that is 2-10x the amount you'd make if you were a W2 employee, there was no looking back.

Knowing you have skills others will buy
While self-employment pay may seem uncertain to people, there is actually a lot of financial security. You may not know when or how big your next paycheck will be, but you feel confident that your skillset or product is something others will continue to purchase. You know how much time or when you need to work to make money.

You don't have to be concerned with being corporate downsizing, laid off, or a horrible boss. The more years you are self-employed, the more confidence you have in your ability to succeed, regardless of the economy. You are a true independent instead of being dependent on being hired.

Retirement Savings Options
If you are not an employee who has their employer match their contribution, you will still be able to invest a lot of money tax deferred, and you can go with the retirement plan that is best suited for you.

If you are self-employed without any full time employees, you can enroll in a solo 401k or a SEP IRA. For the solo 401k you can contribute $19,000 as the employee plus 25% of net income as the employer (up to a maximum of $56,000 annually). With the SEP IRA, a self-employed business owner can contribute up to 20% of net income (up to $56,000 each year).