Small business means freedom to produce
The United States has one of the largest (or largest) economic systems in the world and quite possibly historically… this side of eternity anyway. However, don’t get carried away; Nothing is perfect, and that goes for the American economy, too. 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. Benefit and sustenance for the producer and solutions to the problems and improvement of the life of the consumer. Most of us are trained to go to work for others as employees rather than being exposed and trained in the other ways income is produced. One of the best ways to learn and train yourself in the various forms of income generation is through a basic understanding of the US tax system administered by the Internal Revenue Service (visit the US Treasury website USA). The IRS looks closely at the following types of income:
- earned income
- passive income
- investment income
- rental income
How to maximize earnings from self-employment
Self-employment accounts for a large portion of the income generated in the United States. When someone thinks of self-employment, they usually envision someone who owns a home-based business or possibly someone who is self-employed. In addition to these self-employment categories, some others include contract workers with medium and large corporations and even partnerships (general and limited) and limited liability corporations. Self-employment income is derived from one person’s production and delivery of services and/or products to other businesses and individuals for profit. The beauty of self-employment income is that there is no limit to how much a person can earn. The only drawbacks are the finite amount of 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 but effective way to increase self-employment earnings:
Double your Rates and/or Prices!!!
scenario one: Let’s say you are a business consultant and you have an 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 projected hours per week of 20 hours or not to exceed 80 hours per month. Based on these variables, the total weekly payment is $1,000 and the total monthly payment is $4,000. To keep things simple, you are single and plan to earn $95,000 in annual self-employment income. Based on your 2016 tax bracket, you are expected to owe $19,637 in taxes. Approximately, you owe $5,000 in taxes quarterly. Based on our potential 3-month contract, you can earn $12,000 of which $5,000 is owed and taxed. How can you change this to make more profit and cover more of your taxes? Simple… CHARGE MORE! Based on the perceived value of your product and/or service, double your rates and/or prices.
scenario two: Now, you charge $100 per hour with all other variables constant, except that you now project to earn $115,000 in annual self-employment income. You are projected to pay $25,237 per year in taxes or $6,309 per quarter. Instead of only making $4,000 per month or $12,000 per quarter in scenario one, you now make $2,000 per week, $8,000 per month, and $24,000 per quarter!
It’s up to you: Net of taxes due, you’d rather earn $7,000 or $17,691 per quarter than just DOUBLE YOUR RATES AND/OR PRICES! The choice is yours and it is called Entrepreneurship.
