Tuesday, September 04, 2007

The Suit Subsidy (aka: the Pajamas Tariff).

16 comments:

Nick said...

I think you need a better accountant. I pay less in tax as a freelancer than I did as a full-time employee. Am I missing something here?

sinnick said...

Just because you pay less tax doesn't mean you owe less tax, nick.

Nick said...

@sinnick: Ok then, I pay what I owe. What's your point?

Cassie said...

In the US, Social Security is taken out of your paycheck. My understanding is that an employer pays half of this. If you work freelance, you have to contribute the entire amount, rather than having someone else pay part of it. I think there are other aspects, but that's the one I've seen brought up before.

Wolfger said...

I don't know about social security, but the last time I checked *taxes*, they were based on gross income, and nothing else. Self-employed or not has nothing to do with it. You make X, you owe Y. Now if you're self employed and don't withhold taxes from what you pay yourself on a weekly basis, then you're going to be in for a rude surprise once per year... but that's what you get in exchange for a higher *net* income every week.

Wolfger said...

p.s.
Freelancers typically get to claim a "home office", which is a rather nice deduction, hence they will actually owe less.

Chris said...

Wolfger, taxes (in the US) are definitely not based solely on dollar-amount income. There are whole different forms and processes if you own your own business or work freelance. While there are several big deductions that freelancers can take, not everybody (if honest) qualifies for them. My wife worked freelance for a while and payed a much higher rate of taxes than I did working full time.

Dan said...

Freelancers are taxed at a higher rate. Simple. In fact, freelancers learn to figure that fact into their scale when quoting fees.

What they end up paying is up to their accounting skills.

CWC said...

Yes, I have long referred to that differential as the "a**hole-avoidance tax."

Chris said...

Looks like Nick is going to have a very painful audit if the IRS comes knocking on his door...

Nick said...

The only difference between being full-time and freelance is how your SS tax is paid. However, if you think your employer is paying it and you are not, you are a fool. It comes out of your bottom line relative to what you could bill as a freelancer. It's just accounting slight of hand, put in place because if most people saw the real amount taken out for SS, they would be outraged.

@dan: There are no separate tax schedules for freelance vs. full-time. There is the self-employment tax if you don't incorporate. The self-employment tax is little more than the other half of your SS tax. Again, if you are paying this way, get a better accountant.

@Chris: I've been audited. It was not painful. Nothing my accountant has done has been against the rules.

James said...

No kidding. :(

b. rosen. said...

This is brilliance... as a freelancer, i say, bravo.

John said...

Silly US rules, as a freelancer in the UK, you almost always win because many of your expenses become tax-deductible.

Priscilla Palmer said...

You have been tagged for The Personal Development List. (See my site for details), I would love for you to participate.

Nick said...

@John: I think most of the folks on this blog have bad or no accountants. Just as in you can in the UK, in the US we can deduct many expenses as a freelancer that we cannot as a full-time employee.

 
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