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A Simple Way to Increase Self Employment Profits

Small business means freedom to produce

The United States has one of the greatest (or greatest) economic systems in the world and quite possibly historically…this side of eternity anyway. Don’t get carried away, though; nothing is perfect and that goes for the US economy as well. Despite its many challenges, one of its shining gems is the ability of any American citizen to add value to others by producing goods and/or services for mutual benefit. Profit and livelihood for the producer and problem solving and life improvement for the consumer. Most of us are trained to go to work for others as employees instead of being exposed and trained in other means of generating income. One of the best ways to learn and train yourself in the different ways to generate income is to have a basic understanding of the US tax system as administered by the Internal Revenue Service (visit the US Treasury website) . The following types of income are discussed at length by the IRS:

  • earned income
  • Passive income
  • investment income
  • Rental income

How to maximize the benefits of self-employment

Self-employment accounts for a large portion of income generated in the United States. When someone thinks of freelance work, they usually imagine someone who owns a home-based business or maybe someone who is a freelancer. In addition to these categories of self-employment, some others include contract workers in medium and large businesses and even partnerships (general and limited liability) and limited liability companies. Self-employment income is derived from the production and delivery of a person’s services and/or products to other businesses and individuals for profit. The beauty of self-employment income is that there is no limit to what a person can earn. The only downsides are the limited time someone has to complete and deliver the product and/or service and the amount of taxes to be paid due to the amount of profit made. The following tactic is a simple yet effective way to increase self-employment profits:

Double your rates and/or prices!!!

Scenario 1: Let’s say you are a business consultant and you have the opportunity to hire a potential client for a 3 month contract payable by the hour. Your hourly rate is $50 per hour with a total scheduled hours per week of 20 hours or no more than 80 hours per month. Based on these variables, the total weekly payment is $1,000 and the total monthly payment is $4,000. To simplify matters, you are single and expect to earn $95,000 in annual self-employment income. Based on the 2016 tax bracket, you should owe $19,637 in taxes. Basically, you owe $5,000 in taxes on a quarterly basis. Based on our potential 3 month contract, you can earn $12,000 of which $5,000 is due and payable for taxes. How can you change this to profit more and cover more of your taxes? Simple…CHARGE MORE! Depending on the perceived value of your product and/or service, double your rates and/or prices.

Scenario 2: Now you’re billing $100 per hour with all other variables constant, except that you now expect to earn $115,000 in annual self-employment income. You should pay $25,237 for the year in taxes or $6,309 per quarter. Instead of only earning $4,000 per month or $12,000 per quarter in Scenario 1, you are now earning $2,000 per week, $8,000 per month, and $24,000 per quarter!!!!

You decide: Net of taxes payable, would you rather earn $7,000 or $17,691 per quarter just by DOUBLE YOUR RATES AND/OR PRICE!!! The choice is yours and it’s called entrepreneurship.

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