The Entrepreneur Tax
I finally filed my income taxes a few days ago. Normally I like to do my own taxes. I know; it’s a quirk. I’m process-driven and I like going step by step, adding up the income, subtracting the deductibles.
This year, doing my taxes sucked.
I had my company’s taxes completed by a professional, but this is the first year that I did my income taxes as a business owner. It was also the first year that I had to pay a big tax bill. I thought that I had managed my books throughout the year pretty well, with help from an accountant. I wanted to be sure I followed all the IRS rules, and am not interested in trying to avoid paying my fair share of taxes. I have no idea why, but for some reason I thought that owning a business would make my taxes much lower than when I was a W-2 employee.
Surprise! In a bad way!
When my taxes were done and filed, I came to terms with the fact that my net earnings were less as an entrepreneur than they had been as an employee. I realized how much having a 401(K) reduced my taxes in the past. Contributing to an IRA on my own did not help nearly as much this year.
By the time I pay for licenses, insurance, and healthcare among other things that were covered when I was a W-2 employee, my expenses are higher now. And when I “get to” pay expenses from my business account, it is coming from the income I earned, which leaves less for my salary.
I learned a few things that will help me be smarter about managing my tax liabilities this year, so that’s good. And I’m still glad I’m an entrepreneur and not an employee, so that’s also good! And of course, it’s up to me to find clients, set my rates and work billable hours.
I should also mention that while my net income was lower, I also worked about half as many hours as I had in my last full-time employee role. Some of that was downtime between clients. But most of it was because I was no longer working 12 or more hours day after day. If I run the numbers this way…I actually came out ahead. I came out ahead financially, mentally, emotionally and physically. The entrepreneur tax sounds much more appealing now, doesn’t it?
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