A Project That Will Provide Annual Cash Flows Of A Simple Way to Increase Self Employment Profits

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A Simple Way to Increase Self Employment Profits

Small business means freedom to produce

The US has one of the greatest (or greatest) financial systems in the world and probably historically…yet this side of eternity. Don’t get carried away, though; Nothing is perfect and that goes for the US economy as well. Despite its many challenges, its shining jewel is the ability of any US citizen to add value to others by producing goods and/or services for mutual benefit. Profit and livelihood for the producer and solving problems and improving life for consumers. Most of us are trained to go to work for others as employees and other means of income. Getting a basic understanding of the US tax system administered by the Internal Revenue Service (visit the US Treasury website) is a great way to learn and train yourself in the different ways of generating income. The following income types are discussed by the IRS:

  • earned income
  • Passive income
  • Investment income
  • rental income

How to Maximize Self-Employment Profits

Self-employment accounts for a large portion of the income generated in the US. When someone thinks of self-employment, they usually picture someone who is a home-based business owner or perhaps a freelancer. Apart from these categories of self-employed, some others include contract workers with medium-sized and large corporations and even partnerships (general and limited) and limited liability corporations. Self-employment income is derived from an individual’s production and distribution 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 drawback is the limited amount of time one has to complete and deliver the product and/or service and the amount of taxes payable due to the amount of profit earned. The following trick is a simple yet effective way to increase self-employment profits:

DOUBLE YOUR RATES AND/OR PRICES!!!

Scenario one: Let’s say you’re a business consultant and you have an opportunity to charge a potential client hourly for a 3-month contract. Your hourly rate is $50 per hour and estimated total hours cannot exceed 20 hours per week or 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. According to the 2016 tax bracket, you are expected to pay $19,637 in taxes. Generally, you owe $5,000 in taxes on a quarterly basis. Based on our potential 3 month contract, you will earn $12,000 of which $5,000 is due and taxes are due. How can you change this to make more profit and cover more of your tax? Easy… Charge more! Double your rates and/or prices, based on the perceived value of your product and/or service.

Scenario two: Now, you charge $100 an hour with all other variables except that you now project to earn $115,000 in annual self-employment income. You’ll pay $25,237 in taxes for the year, or $6,309 per quarter. Instead of making $4,000 per month or $12,000 per quarter under Scenario One, you now make $2,000 per week, $8,000 per month and $24,000 per quarter!!!!

You decide: Net of taxes paid, would you double your rates and/or prices and make $7,000 or $17,691 per quarter!!! The choice is yours and it is called entrepreneurship.

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