side hustle Archives - Sean McCarthy

Freelancers: Pay Your Future Self vs. The Government- Legally

Sean McCarthy — Thu, 20 Apr 2023 16:06:42 +0000

Keep your money and pay fewer taxes.

Whether you freelance full-time or on the side, once it earns you a certain amount of money, you owe the government a good portion of your hard-earned proceeds.

The good news is that you have options. You don’t need to give it all to them. You’re legally allowed to keep some of what would normally be theirs for the future you.

It’s actually rather simple.

As the money piles up

At the end of the year when you’re pulling together your 1099 MISC forms showing the bazillions of dollars that you earned for your craft, the realization sets in that you can’t keep it all. The IRS is legally entitled to a big ‘ol chunk. You have to give them some, but less than you might think.

To cover income tax, self-employment tax, and state income tax if it applies, you should plan on setting aside 20% to 35% of the amount you earn.

If you saw those two numbers and hope for the lower end, you’re not alone.

If you saw the higher and became instantly concerned, ditto.

Before the hyperventilation starts to get the better of you, keep in mind that you can easily and legally knock down the amount of what those percentages equate to in dollar amounts.

Reduce your tax burden

First, have a conversation with your accountant about all of the wonderful deductions that you can take that pertain to your freelance business. You’ll be amazed at what you can legally deduct as a business expense that will reduce the amount of tax that you’ll owe.

Yes, I said accountant. They’re not as expensive as you might think. They also know things about tax law that you and I probably don’t. Whatever they charge you, they can easily save in what you end up paying for taxes each year. Plus, tax preparation isn’t fun, unless you’re an accountant.

Second, take advantage of retirement account(s). Being self-employed doesn’t prevent you from participating in these IRS-sanctioned tax shelters.

The Internal Revenue Service sets the contribution allowances for retirement plans like a 401k or an Individual Retirement Account (IRA).

According to the IRS website, for 2023, the annual limit for IRA contributions is $6,500 and increases to $7,500 for those 50 and over. The maximum 401k contribution is $22,500 and increases to $30,000 for those 50 and over.

Let’s quickly discuss these two retirement accounts as they pertain to you as a freelancer.

An IRA account can be opened at credit unions, banks, online via brokers, and through companies that offer financial planning. For those that fall in the 24% income tax bracket, contributing $6,500 toward an IRA would equal slightly more than $1,500 off your tax bill.

The potential to pay even less in taxes

If you freelance part-time and have a full-time gig that offers a 401k plan, there’s some good news.

If you’ve been hesitant to contribute to it or increase your contribution, this might be a good way to shelter a bunch of that extra income so that you can tap into it when you retire.

Up to the maximum allowed, the amount that you contribute reduces your taxable income amount dollar for dollar. For instance, if you earn a total of $60,000 between your full-time job and your freelance side hustle and contribute $20,000 toward your 401k, your taxable income becomes $40,000.

Of course, that‘s $40,000 before you and your accountant determine all of the deductions for your self-employment endeavor which can knock it down even more.

Keep your money

The best part is that those contributions are yours to keep and begin tapping into without penalties once you reach retirement age. The amount of annual return your retirement account earns depends on your investment choices and strategy.

Your options aren’t limited to a 401k or IRA. There are more available as well that you can research or speak to your accountant or financial planner about.

The important thing is to understand that depending on your situation, you are allowed keep a substantial amount of the money that you earn as a freelancer without handing it over to the IRS in the form of taxes.

You can’t just start spending it now without penalties, but your future self will thank you in the years to come.

This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.

The post Freelancers: Pay Your Future Self vs. The Government- Legally appeared first on Sean McCarthy.

Stop Asking Your Boss, They’ll Never Tell You What’s Best for You

Sean McCarthy — Tue, 28 Feb 2023 18:46:56 +0000

It’s time to get some sand in your butt crack and work for yourself.

Whatever answer your boss has to any question that you ask them will always be what benefits them the most in the end.

It doesn’t matter if you’re asking for more time off, more money, or a promotion. Rest assured that whatever reply they give is going to be in their best interest, not yours. A quick answer usually indicates a canned and planned response.

If they get back to you in a day or two, they need more time to work the numbers to see how anything but the status quo is good for them.

Why it’s never about you

Rule #1 when you are an employee is to understand that even though you chose to work where you do, everything that you do is for the betterment of your employer and in helping them succeed in whatever goals they’ve set out.

Whether you’re the right hand to the CEO or a cog in their wheel that can be replaced by the same time tomorrow by anyone with the ability to show up on time, your role is to help that company flourish as best they can. Period.

Sure, they dangle the carrot in front of you during the interview and hiring process in the form of partially paid health insurance premiums and unmatched 401k opportunities. They even offer to pay you for holidays and a week of vacation along with some sick time. Is it out of the goodness of their heart?

Nope. Think again. It’s all built into what it’s costing them to use you for their cause.

Everything from your salary or hourly rate to allowing you to spend your annual savings flying coach to a place where you can put your feet in the sand for a week, less travel time, is calculated. The privilege of having you in their presence is a cost of doing business for them.

You may have convinced yourself that they need you. The truth is, they need someone, but they don’t need you.

Work for you, do work for them

If you started a new job to better yourself and your life, you’d have never taken a job working for someone else.

There are endless opportunities available today for anyone who wants to make money that don’t involve working for someone else. If you work for yourself you may have to do work for someone else, but you are not working for them. There’s a difference.

You’re the boss. You decide which clients to keep and which to drop. The more time you spend working for yourself, the easier this will become.

We live in a connected world that allows us to do almost anything from home. What do you wish you were doing instead of clocking in for someone else every day?

Sure, being a beach bum is a thing. I’ll be more specific- What’s the thing that you wish that you were doing that would allow you to be a beach bum?

Once you know what it is, start doing these things:

Read how-to articles and watch videos about it.
Follow people on social media who already are doing it,
Don’t wait until you know everything about it to start doing it,
Get some business cards printed up and pass them out to everyone. This helps to hold you accountable to yourself and keeps you moving in your direction.
Post on social media that you’re doing it. Don’t worry about the naysayers. They’re just jealous that you’re doing what they wish they were.
Don’t wait until you’re off the clock. If you have some downtime during work, tick off a few tasks. Nothing feels better than cheating on your boss a little.

Work from wherever

Working from home and working for yourself doesn’t have to mean that you never leave the house. Your home office could merely be the starting point of your journey.

My wife is a fantastic event planner. Clearly, at some point, she has to leave the house for this.

From the idea to the day of whatever it is that she laid the entire groundwork for, her passion and dedication shine through. The thing is, she only actively plans things on occasion. She’s passively planning them on a regular basis, usually for the place where she works, and not as part of her job.

Oh, and almost all of the time for zero dollars.

Most of the time when these events are being planned and taking place, she’s utilizing her time during evenings and weekends. It’s hard to fault her, she enjoys doing things for people and causes that she believes in.

Without suggesting that she stop doing that type of pro bono work or quitting her day job (yet), I mentioned to her that she should start a side gig as an Event Planner.

We live in an area where a person like that doesn’t really exist. Or, if they do, they’re not telling anyone else that they’re doing it. If they were doing it and were any good at it, other people would be talking about them, and that’s not happening.

This list that I outlined above is a perfect starting point for her. She has the personality for it and I know that she’d kill it. However, I know that she also suffers from what many people do in regard to turning something that they enjoy into a money-making mini-empire… self-doubt.

Not so much about her ability to do it, she already does it.

She’s more than capable of accomplishing anything that she sets her mind to, but starting a side hustle has a sense of uncertainty. When I mentioned how much money she could charge for it, I could feel the doubt in her body language as she ran the idea through her mind.

I’m not entirely sure why she doesn’t believe in the financial side of it. She’s seen me toss out ridiculously large arbitrary dollar amounts for my work and get it.

More than a few times she’s basically wished me a very sarcastic good luck when I’ve shared what I told a boss or client what I’m going to need to move forward. It’s fun to see her face when I don’t budge and they pay up.

I know what I’m worth. I believe in her and what she’s capable of and I know what she’s worth. She just needs to believe it.

Find your beach

This is where you come back around to your beach bum idea.

Dig in. Passion, persistence, and drive will always win over talent sitting on a shelf. You don’t have to be the best to become the best. You just need to start somewhere.

Plus, a little sand in your butt crack always feels better than having a boss constantly up your ass.

The post Stop Asking Your Boss, They’ll Never Tell You What’s Best for You appeared first on Sean McCarthy.