Small Business Means Freedom to Produce
The US has one of the greatest (or the greatest) economic systems of the world and quite possibly historically... on this side of eternity anyways. Don't get to carried away, though; nothing is perfect and that goes for the US economy as well. In spite of its many challenges, one of its shining gems is the ability for any US citizen to add value to others by producing goods and / or services for mutual benefit. Profit and livelihood for the producer and solutions to problems and improvement of life for the consumer. Most of us are trained to go to work for others in the form of employees instead of being exposed and trained in the other ways in which income is produced. One of the best ways to learn and train yourself in the various ways of income generation is through a basic understanding of the US tax system as administered by the Internal Revenue Service (visit US Treasury website).
The following income types are discussed at length 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 that's a home based business owner or possibly someone that's a freelancer. In addition to these categories of self-employment, some others include contract workers with mid-sized and large corporations and even partnerships (general and limited) and limited liability corporations. Self-employment income is derived from a 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's no limit to how much a person can make. 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 payable due to the amount of profit earned. The following tactic is a simple yet effective way to increase self-employment profits:
Double Your Rates and / or Prices!!!
Scenario One: Let's say that you're a business consultant and you have an opportunity to engage a prospective client for a 3 month contract payable by the hour. You're hourly rate is $50 per hour with a projected total 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 total monthly payment is $4,000. To keep things simple, you're single and plan on earning $95,000 in annual self-employment income. According to the 2016 tax bracket you are projected to owe $19,637 in taxes. Roughly, you owe $5,000 in taxes on a quarterly basis. Based on our potential 3 month contract, you stand to earn $12,000 of which $5,000 is due and payable for taxes. How can you change this to profit more 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 for the year in taxes or $6,309 per quarter. Instead of just earning $4,000 per month or $12,000 per quarter under Scenario One, you now earn $2,000 per week, $8,000 per month, and $24,000 per quarter!!!!
You Decide: Net of taxes payable, would you much rather earn $7,000 or $17,691 per quarter just by DOUBLING YOUR RATES AND / OR PRICES!!! The choice is yours and it's called Entrepreneurship.