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Part Two: Technical Self-Employment For All
MoNickels writes "I've posted
part two of the article series encouraging the unemployed to take up freelance technical support, including advice on knowing if this work is right for you, marketing yourself, learning on the job, handling and educating clients, managing the business, the temperament required, and the negative aspects of the work." See part one if you missed it.
If you are leaving an existing job, look at a COBRA plan to extend your existing insurance for 18 months. You will pay slightly more than the group rate, but it will guarantee you coverage. Do NOT let your coverage lapse!!!
The following is my personal experience and should not be taken as complete truth since I am still working through the process. Since my father-in-law is an accountant, I have been getting good advice to guide me through this process.
Until recently, I was able to keep insurance for my family through my wife's insurance. Since my wife no longer works we are looking for insurance for the four of us.
Surprise! my son's bout with pneumonia (sp?) more than 1 year ago has caused all sorts of problems with acquiring individual insurance. Not only will they not cover my 4 year old son, they want to increase the rates on the rest of us by 50%. This amounts to quite a sum of money.
We stopped the process of trying to get insurance online and contacted an agent. We still couldn't get reasonable insurance and no company wanted to cover my son. However, we have been informed that we cannot be refused insurance if we sign up as a group. This will also keep our rates lower than the quotes we had been getting.
How do you qualify as a group?
You need to have two people involved in your company. I formed a single member Limited Liability Company (LLC) in California about two years ago. I have since added my wife as a member of the LLC and we suddenly qualify as a group and can apply for group medical insurance. We are doing this now, so I don't have estimates on costs. However, I would like to mention some other steps I have taken because of this.
Normally, an LLC does not require you to be a W-2 employee of the LLC since the money passes through the LLC to you as an individual. This means that you don't have to file a corporate tax return or employer tax statements. I did not want the burden of managing all of the paperwork that comes with hiring employees and printing paychecks. Surprisingly, the payroll companies (ADP in this case) are very cheap and handle the paperwork for you. I will pay a total of $50/month for all of my payroll and tax reporting requirements.
Why would I spend $50/month on this?
When you have employees, you can set up an employee medical reimbursement plan on a pre-tax basis. Without an employee medical reimbursement plans, you can only deduct medical expenses in excess of 7% of your income (I think this number is changing). With a medical reimbursement plan, you can deduct 100% of your employees medical expenses (vision, dental, prescriptions, copays). However, you need to have employees for this. Since my wife is already doing the books and my billing, I hired her and gave her a salary (less than my salary of course).
What does all of this mean?
It means that you should consult an accountant. There are a number of ways to reduce your tax burden and get better insurance. Some of the things that seem expensive and a pain in the ass might not be. Learning the ins and outs of business practice can be time consuming and may not seem that important when deadlines loom. This is why you pay an accountant and follow their advice. If you are earning $100k/year and wasting $10k on insurance,taxes or other business expenses, you can afford to take some time to fix your expense structure or pay someone to fix it for you.
Good Luck,
--Keith