The Wall Street Journal does an admirable job today laying out those implications--admirable both for its thoroughness and also for its tone, which points out, "higher expenses and other costs come along with your newfound liberty," while acknowledging, "That doesn't mean you shouldn't try. There are few more gratifying accomplishments than making it on your own."
Briefly, the Journal says owning your own business could mean:
- Higher taxes. The self-employment tax essentially sees you paying both sides of the payroll tax.
- 401(k) mishaps. The bevy of deductions you'll be inclined to take could lower your taxable income to the point that you are unduly restricted in what you can contribute to a retirement plan.
- Mortgage obstacles. Since lenders will look at your earnings after expenses, you could find yourself turned down for mortgages you know you can handle.
- Insurance costs. You'll need to purchase insurance for your business and health insurance for yourself.
All in all, the article estimates that if you want to end up as an independent businessman with the same amount you take in as a wage-earning employee, you should plan to gross 20% more. But maybe that's not discouraging--maybe you see that as a challenge. In which case, you're probably a natural entrepreneur anyway.
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