You may believe that it’s easy to become self-employed or to start your own business. Even though you are ahead of many due to your military pension, there are several financial realities that should make you stop and think. However, if you are really eager to become self-employed, you shouldn’t let these concerns stop you from reaching your goals. If you have a good financial plan in place, you may be able to avoid pitfalls.
1. Startup Expenses Can be a Barrier
While on active duty, you’ve perhaps not counted the minimal perks you received. Almost everything you needed to do the work was provided for you. You worked in a space that the military paid for. When you are self-employed, you’ll have to procure the assets you need to do the job yourself. You will have to maintain upkeep on those assets as well as on the space where you do the work (even if, or especially if, you work out of a vehicle). Startup costs can pile up quickly. The costs may include things like commercial banking services and insurance plus equipment, licenses and certifications.
2. Your Tax Situation May Become Complicated
Tax time may present a completely new set of financial issues for you when you become self-employed. You’ll be responsible now for paying self-employment taxes which include both sides, employee and employer, of Social Security (currently 15.3%). It will be in addition to the income tax you owe. You will need to make quarterly estimated tax payments.
Conversely, self-employment will allow for new deductions. In essence, if you spend a dollar to make a dollar, it most likely will be deductible in some form. Some examples are, home office deductions, office supplies, computer expenses. You can also deduct business-related travel expenses. You may also be able to deduct the cost of paying a financial or tax advisor to help you figure it all out.
3. Budgeting May Be a Challenge
With your military pension, you'll be ahead of a lot of business owners. But when you first start out as a self-employed, you may miss the predictable, full, regular income stream you received while on active duty. Setting a budget is much easier when you know how much will be in your account each month. For some self-employment jobs, like seasonal work, your highs and lows may be predictable. For other jobs, like consulting, it may be hard to gauge how to handle things. The safe bet may be to save during the feast so that you can eat during the famine.
4. Saving for Your Retirement Will be Different
When you’re an employee, the employer looks out for your future by contributing to your retirement plan. Once you’re self-employed, you have to save for your own retirement. The good news is that you'll have the option to put away a lot of money towards your retirement.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.