With more and more individuals changing their careers, whether by choice or due to circumstances beyond their control, it’s important to know what other changes are in store. There are different options and needs for filing taxes, for insurance, and more. What do you need to know about moving from a W2 job to self-employment?
You Pay More in Taxes
As Breeze points out, when you’re working for an employer, your employer pays half of your social security and Medicare taxes, leaving the other half for you to pay. When you work for yourself, you are your own employer, which means you get to pay all of that. This doesn’t include income tax, either! You also have far more complicated forms to fill out at the end of the year as a 1099 filer, but that part isn’t insurmountable!
You Have to Buy Your Own Insurance
When you have always had a full-time job which includes benefits, one of the biggest shifts is when you have to pay your own insurance! This includes different needs for different individuals. Medical insurance is critical, of course, and dental and vision coverage. According to Insurance Center Associates, the higher risk of your job, the more you need disability insurance. There are options for shopping around and making sure you have the coverage that you need to protect both yourself and your family.
Responding to the gig economy that’s been created over the last few decades as more and more employers began using contractors, the US government passed new tax amendments in 2017 which changes a few things for contractors and others who don’t get W2 forms, which can help. This created new pass-through deductions which have made it a lot cheaper to be a freelancer. Likewise, changes to things like doubling the standard deduction for individuals and couples has made it more possible for freelancers to get ahead.
It’s possible to make this transition, if you’re willing to learn the things you need to do differently! Always make sure that you are insured for whatever kind of work you do, so you can be safe and ready for all you do. Know about the differences in W2 and 1099 filing with the IRS. And, perhaps most critically, make sure you have a tax preparer who is experienced in the new tax code changes, so that you can get the maximum benefit from all of your hard work!
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