Challenges in Working for Yourself
Filed Under: Business, Lifestyle | Posted: 03/03/2008 at 4:54PM
Comments | Region: New Mexico | United States
This is part 9 of a series in making the leap to self-employment
Flying on your own without the benefit of a paycheck net under you is going to present challenges.
One of the biggest of these challenges is fear. It’s that sinking feeling you get when the Receivables account shows a mere $100 and bills are coming due. It’s asking the question, “Who’ll run the store if I break a leg?” “What if I can’t find customers?” The “what ifs” can keep you awake nights if you let them.
A productive way to handle fear is to indulge it. Ask yourself what is the worst thing that will happen if you don’t make enough money. If you become temporarily disabled. If some other emergencies arise.
You will lower the chances of any of these events occurring by thinking in advance about what you could do to either prevent your worst fear from happening or to minimize the impact if it does occur. Then, take action despite your fears. “Act as if” you expect your new life to be successful.
Nelson Mandela, past president of the Union of South Africa, knows what fear is and he has faced it head on. Here’s what he has to say in his 1994 inaugural speech:
“Our deepest fear is not that we are inadequate; our deepest fear is that we are powerful beyond measure. It is our light, not our darkness that most frightens us. We ask ourselves, ‘Who am I to be brilliant, gorgeous, talented and fabulous?’ Actually, who are you not to be?”
In addition to Mandela’s powerful message, you might want to internalize this advice from business guru Tom Peters: “Unless you walk out into the unknown, the odds of making a profound difference in your life are pretty low.”
Getting health insurance
Ah, health insurance … it’s the one matter that, more than anything else, keeps people chained to their cubicles way beyond the time they should have cut the corporate chains. Because most Americans depend on their employers for health insurance coverage, quitting a job or being laid off from a job usually means you lose this important company benefit.
Although there are no magic solutions to the very real problem of getting health insurance, there are a few strategies you can pursue.
You fortunate ones will have a spouse whose insurance will cover you. If you’re in that boat, by all means take advantage of it.
An immediate solution can be COBRA, the acronym for the extended health care coverage made available under the Consolidated Omnibus Budget and Reconciliation Act of 1986. The plan allows workers to continue their employer health care coverage after they’ve been laid off or voluntarily left a job. COBRA must be made available by companies with 20 or more employees.
COBRA generally lasts just 18 months, and, unfortunately, can be pricey. Until Congress finds a way to cut health insurance costs for Americans, COBRA is the only plan that’s mandated by the government and can be the best way to tide you over, especially if you have any kind of health condition.
You can also check eligibility for state-run health care programs such as CHIPs – Children’s Health Insurance Programs – or Medicaid.
Do your research. Call independent insurance agents and find out what they have available. Get quotes from alumni or professional associations you belong to, or you could join, such as the NASE (National Association of Self-Employed). Check with your local Chamber of Commerce.
You will find a vast amount of information on the internet. The National Association of Insurance Commissioners’ site at www.naic.org, has links to all 50 state insurance agencies. www.Quotesmith.com reportedly has the lowest prices from 300 companies. www.insure.com. has a comprehensive guide that will advise you of rights to specific coverages, your rights to guaranteed-issue plans, and discusses the issue of pre-existing medical conditions. The site also lists states that offer health insurance pools.
You will also get valuable information from www.consumersunion.org and www.familiesusa.org.
Not being savvy about taxes has sunk more than one self-employment venture. Taxes look a lot different from the perspective of the self-employed. Up to the time you quit your job, your employer deducted Social Security taxes from your paycheck, matched that contribution and sent wage reports and taxes to the IRS. But, guess what … once you’re self-employed, the burden for paying all those taxes falls on your shoulders.
You report your earnings for Social Security when you file your federal income tax return — on Schedule SE, in addition to the other tax forms you must file.
That’s the bare facts. The problem comes in managing the tax bite. You will be wise to put a system in place in which you put a percentage of your accounts receivable into a “tax account” right away. That way you won’t be tempted to spend money that Uncle Sam will have his hand out for before the quarter is over. And the tax bite can be shocking at first, especially the “self-employment tax.”
Having said that, you should also keep in mind that owning your own business is one of the best ways to reduce your taxes. You use your business to convert your personal expenditures into allowable deductions. Don’t try this by yourself! Work closely with your tax accountant to identify legitimate deductions you can take.
You will find more tax strategies for the self-employed that you can follow up on in your library and bookstore and, of course, on the internet.
Part 10, “Put it Down on Paper,” continues the series on being successfully self-employed.