There are several factors that should be considered when deciding between working for a salary, and self employment. You have the added benefit of Social Security advantages for the self employed if you are in America. List the benefits and disadvantages to see whether you will be better off as an employee or an employer.
LeaveYou can take leave a suitable time and you don't have to take it in consecutive days if you work for yourself. There isn't a company policy that states that you must work for a certain period before you are entitled to leave. When you work for a salary, you have to take leave at a stipulated time and not always at a time when you need it. You are entitled to a limited total of leave days a year, although you get paid leave whereas the business owner has to pay for his own leave. You don't get paid if you are sick when you work for yourself.Working hoursWhen you work for yourself, you decide on the working hours and can adapt to changes. This means more freedom and flexibility that allows you to attend to urgent matters without explaining or completing forms. If you work for a salary, it means that you have to complete leave forms and request permission before you can take hours or days of. You have to be at work at the stipulated times and be willing to work overtime if required. Many business owners operate from home, and can still be around their families while working. The salary worker is usually at a remote location and doesn't see his family while working.
You are not always eligible for loans, since the financial institutions require three month's salary slips. If the bank statements of the past three months indicate that you get a regular income, you will however qualify for personal loans and accounts. The problem is that you need to bank money on a regular basis. Since most small business owners try not to show a profit for tax reasons, you have to decide whether you want credit but high tax and banking costs, or no credit and low tax.
When you work for a salary, you have the security of a stable and predictable monthly income. Many businesses have high income and low income periods. This means that you have to budget for long periods of low or no income if self employed.
Advantages of self employment in terms of Social Security benefits (USA)
You can be self employed and receive disability payments. It has the advantage of being able to work when you can, without explanation to prospective employers of periods of non-employment or lack of income. Since you cannot discriminate against yourself, you also won't have any company policies that limit the type of work you may perform if you are HIV positive.
The benefits are calculated according to net profit income for people who work for themselves. It implies that you can use the tax deductions to your advantage if self employed.
You must however keep track of income and expenditures in the form of accurate bookkeeping. The tax forms should be completed on time and you must get acquainted with all the allowable deductions. If you have a business that doesn't show any profit, you will have no deductions from the benefits.
Tax advantages of being self employed
The business owner is allowed to deduct his cost for starting a business from tax when he sells or closes his business. The alternative method is to spread the starting investment over a 5 year period and deduct it annually. This can only be done if you do it from the starting date. You deduct the costs as part of the expenses. These costs include traveling, entertainment, tools, equipment, sourcing for products and suppliers, marketing expenses, and consultancy fees.
If the business is based at home, tax deductions for the structure can be as much as for every 000 in value. You may deduct 75% of the cost of new equipment purchased for the business. Further reductions can be made for indirect costs such as insurance, rent, electricity, bonds, security, and repairs. Keep in mind that you need proof of these expenses and should keep record of all income and expenses. As much as 25% of indirect costs can be deducted from tax.
When you employ your children that are between 6 and 18, you can deduct it as an expense as long as you have proof of receipts and it is for actual work done. This means that your income tax will be lower.
If the husband and wife run separate businesses from home, they can pay rent to each other and deduct it as expenses. This includes rental of cars, office space, and equipment. You must have proof of actual rental and payment. The price must be in line with the market and the husband or wife must be able to proof that they are the owners of the assets rented.
You may also deduct part of your contribution to medical aid or health risk cover. If you employ your wife or husband, you can get 100% back from the contributions to the health insurance.
If self employed, you may also deduct travel expenses, such as accommodation and food. The cost on food, parking, accommodation and mileage must be recorded, as well as departure and arrival dates and times and the return date.
The own boss factor
As self employed person, you decide on procedures, leave days, working hours, expenditures and policies. It also means more responsibility, less security, longer hours and higher risk than working for a salary. If you are a disciplined, self motivated individual who enjoy taking risks, and enjoy making decisions, you can consider working for yourself. If you prefer more security, need motivation and don't mind corporate rules, then the benefits of working for a salary, maybe a better option.