Many people become self-employed to have greater control over their careers, to follow their passions, or simply for personal reasons. There are many other benefits to self employment in Texas that are sometimes overlooked. It’s easy, too, to focus on some of the challenges to being self employed. When you work for yourself, you are solely responsible for your income. Your profit is tied to your ability to sell your products and services — and to deliver them in a way that meets your customers’ needs.
In the long run, most people who become self employed view the outcome as a net positive. Yes, there are challenges. Yes, the responsibility is far greater than being an employee. However, the benefits of self employment in Texas can be extremely rewarding. Here’s a look at some of those benefits.
Texas forbids income taxes in the state’s constitution. Instead, it relies on sales and excise taxes to help support infrastructure and services. This is one of the best benefits of self employment in Texas for those who are able to turn their business into a successful entity. High earners get to keep a bigger chunk of their income that would have otherwise gone to the state. This can potentially save you thousands of dollars each year.
You will still be responsible for paying self-employment taxes, which are composed of two different parts. The overall self-employment tax rate is 15.3%, with 12.4% going to social security and 2.9% going to Medicare. The good news is that there are ways to lower your tax burden and hold onto more of your money. Take a look at our guide to self employed tax deductions for more information.
Another one of the benefits of self employment in Texas is the ability to earn an unlimited amount of income. Paired with the fact that there is no income tax, this makes for high earning potential. While corporate jobs and other positions where you are an employee trade you money for a set amount of time, self employment has no such caps on income. You are the only person in charge of how much money you can make.
Self employment means those that want a raise can do it. It requires hard work and dedication to drum up more business, but it also allows people to reap unlimited rewards. Your only limits are time and work ethic.
Self employed individuals have several different retirement savings plans they can leverage. While employees can sometimes receive matching contributions from employers, they are also limited by stricter contribution rules. Self employed individuals who fund their own retirement face less limitations. Self employed people can choose to save for retirement through SIMPLE IRA, SEP IRA, and Solo 401(k) plans, which are set up to enable flexible contributions.
With SEP IRAs, you can contribute up to 25% (a quarter!) of your salary, with a capped contribution limit of $57,000 for 2020. That amounts to a huge chunk of tax deferred money, which means the taxes you owe now are reduced and the taxes you’ll pay later could be theoretically lower as well.
With Savings Incentive Match Plan for Employees (SIMPLE) IRAs, you can contribute all of your net earnings from self-employment up to $13,500 in 2020. If you’re 50 or older, you can contribute an additional $3,000 on top of that. In both cases, you can also make an additional 2% fixed contribution or a 3% matching contribution.
Solo (also called “one-participant”) 401(k) plans function in the same way as any other 401(k) plan. It covers a business owner without any employees, and enables the business owner to contribute as both the sole employee and the employer. The IRS has created a special computation for self employed people to figure out the maximum amount of elective deferrals and nonelective contributions they can make. You can get more information on that here.
One of the greatest benefits of self employment in Texas is that Decent health insurance is available. While many self employed individuals have a hard time finding affordable, comprehensive health insurance, those in the Austin area can choose one of Decent’s health plans:
Decent also offers health plans for small business owners who have employees:
Our plans were specifically designed to help people find comprehensive coverage without breaking the bank. Our plans also include free primary care, so you never have to stress about paying to see your primary care doctor again. Ready to get started? Get your free quote.