There were 6.9 million unemployed Americans in November 2021 compared to 5.7 million in February 2020 before the COVID-19 pandemic. This is according to the Bureau of Labor Statistics (BLS) data. In addition to those who were let go from their jobs, this possibly includes those who quit their jobs and have not found new employment. There were 3.99 million who resigned on April 1 this year, 3.63 million in May, 3.87 million in June, 4.03 million in July, and almost 4.3 million in August, as reported by the Department of Labor. In September, 4.4 million workers quit, according to the BLS Job Openings and Labor Turnover Summary.
Self-employment is an excellent solution for people who lost their jobs or resigned to look for better options. According to an analysis by the Pew Research Center of government data, self-employed workers increased by 17.6 percent to 14.9 million in the second quarter of 2021 compared to the second quarter of 2020. This is at par with the pre-pandemic level of self-employment.
Types of Self-Employment
People from various professions or trades can immediately establish a practice as self-employed individuals if they do not wish to join firms. These are accountants, lawyers, architects, interior decorators, doctors, dentists, veterinarians, plumbers, electricians, writers, artists, real estate brokers, and many others.
People can offer services related to their primary profession. For instance, teachers can become tutors. Musicians can teach also children and adults how to play instruments. Nurses can become private caregivers outside hospitals. And even human Resources professionals can become career coaches. Information Technology (IT) professionals can offer a wide range of digital services.
People can also develop skills such as selling to become self-employed. Many online sellers do not have formal backgrounds in business. Examples of other skills that can lead to self-employment are driving, events management, cooking, baking, and sewing.
How You Can Be Your Boss
There are several ways to be self-employed. You can be an independent contractor. You can also set up a sole proprietorship or a limited liability company (LLC). A sole proprietorship is more accessible and less costly to set up. However, it exposes your possessions to the liabilities of the company. As the name implies, the LLC limits the liability to the assets owned by the company. If the business goes into debt, the owner will not go into bankruptcy.
The taxation of an LLC with only one owner is the same as that of a single proprietorship. Business income or losses are reported in the personal tax return and taxed according to the individual rate. A self-employed person pays quarterly taxes based on estimated income and annual taxes. There is also a self-employment tax to cover Social Security and Medicare. The adjusted gross income is lowered with the deduction of the employer portion of the tax. You can also deduct the cost of your health insurance.
You can claim a home office deduction if you, the business owner, conduct your business at home. This includes a proportion of the rent or mortgage, mortgage insurance, utilities, service bills, security system fees, and repairs and maintenance on the office.
Give Yourself Benefits
Self-employed people need to get covered by the most appropriate and adequate business insurance. This will protect you when you most need it. When you must make a claim, an insurance law firm can give you guidance on this.
Apply for health insurance at Healthcare.gov to claim any subsidies for which you might qualify. Another option is to look for health insurance through the Freelancers Union.
Prepare for your old age with a Self-Employed 401(k) and a Simplified Employee Pension (SEP) Individual Retirement Arrangement (IRA). You can pay a traditional solo 401(k) plan with pre-tax income, but you will pay taxes upon retirement. The Roth solo 401(k) plan pays after taxes and is entirely tax-free upon retirement. You must open a trust for the funds with an investment company, insurance company, or online brokerage. For 2021, the maximum contribution is $58,000. This will increase by 2022 to a lower figure, between $61,000 or 25 percent of adjusted gross income. If you are 50 years old or older, you can contribute $6,500 more each year.
You can open a SEP IRA with any major bank or online brokerage and contribute up to whichever is less between 20 percent of your net earnings or the annual contribution limit. This is tax-deductible.
When you are your boss, you hire only the best talent. As a self-employed individual, you must bank on your strengths and work on your weaknesses to succeed. Invest in self-improvement courses if you need them. Investing in yourself will be profitable because you are your best asset. When you are ready, it is time to get down to business.