The Pros and Cons of Self Employment

There is no doubt we are in unique times and uncharted territory!  To put this into context, over 47 million people voluntarily quit their jobs in 2021.  In total, 68.9 million either quit, were laid off, or were discharged.   According to the Bureau of Labor Statistics, in December 2021 alone, 4.3 million Americans quit their jobs, down slightly from the record 4.5 million quits in November 2021!

While millions resigned for cash incentives, better pay or better benefits, many people also left the labor market to care for children or elderly relatives during the pandemic.  Many older workers either retired early or were forced out of the labor market because of age discrimination.

Keep in mind that we have roughly 330 million residents in the United States, which includes underaged non-working children, and retirees.  68.9 million people leaving their jobs has created a huge workforce void in the restaurant, hospitality, trucking, and many other fields.  This is known as “The Great Resignation!”

According to the Census Bureau, a record 5.4 million new business applications were filed in 2021.  What does this mean?  This means that there are millions of people that have gone from working for small, medium, and large corporations to being self-employed. 

Having done this myself, I know this can be a difficult transition.  I went from working as an Agent for The Prudential Insurance Company of America, (The Industry Leader at the time) who recruited me while at Lehigh University, to the President and Founder of Intelisano & Associates, Inc. back in 1999. 

As an employee of The Prudential, the company took care of many things for me such as office expenses, supplies, advertising, back-office support staff management, and W-2 employee tax record keeping, just to name a few. 

As a newly self-employed fully independent Broker and S-Corporation business owner in February of 1999, I was then left to fend for myself in those areas, as well as to rethink how to acquire new clients and run my insurance agency and back office.

An insurance “Agent” works for and represents an insurance company where they must place ALL or a significant majority of the agent’s business.  An independent “Broker” represents you, the client, and shops the market for the most suitable product available. Because I left Prudential, I was forced to leave ALL my clients and renewals with Prudential Insurance and start from scratch.  Many of the 5.4 million new business owners will now be in a similar situation. 

Like anything else, there are pluses and minuses to running your own business.  The Pros include but are not limited to:

1. Qualifying For Tax Deductions Traditional Employees Do not: If working from home, you are able to deduct a portion of your rent or mortgage payments as well as home office expenses such as phone, office supplies, and utilities.  You can deduct car expenses such as gas, maintenance, parking fees, tolls, and depreciation. 
2. Job Security: You have the coolest boss (yourself), so you never have to worry about getting fired or getting your pay docked.
3. Time Freedom: No more checking with your boss or putting in for time off when you want to book a family or personal vacation.
4. Family Time: You can schedule your work around special occasions, proms, birthdays, plays, anniversaries, and sporting events.

The Cons of Running Your Own Business Include:

1. Submitting Two Tax Returns: When you are self-employed, you must file both a personal tax return (usually due on April 15^th annually) and a corporate/business return (usually due March 15^th annually). 
2. Quarterly Tax Payments and a Higher Rate: Two of the biggest cons are that you must make estimated quarterly tax payments for the estimated taxes you owe and pay a higher tax rate.  Consult with your CPA first!
3. Social Security and Medicare 15.3% Tax on Income: All workers are required to pay a 15.3% tax (up to the first $142,800) of net income.  As a W-2 employee (you work for an employer) you are responsible for only half the tax as your employer pays the other half.
4. Health Insurance Sticker Shock: A large group (50-100+ employees) health insurance policy can cost between 20%-30% less than an individual health insurance policy for the same person.  Also, many employers subsidize a portion (often between 25%-50%) of your monthly health insurance premiums.  This results in what I call “sticker shock” when people see the “Actual” cost (which can be double) of staying on your former company’s health plan by going onto Cobra. 

In certain situations, my firm can help with Con #4!  If you own your own business with an active employee identification (EIN) number and are working full-time, we have access to large company plans where we can link a smaller company or “SOLO-PRENEUR” to a larger company plan therefore, you will benefit from economies of scale.

If you are feeling health insurance “sticker shock,” feel free to reach out to me at [email protected].  To be added to our monthly e-newsletter list, email “Add Me” to the same email above.