#5: WORKING FOR YOU VS. BEING A W2

Today’s episode will dive into the differences between being a W2 employee and being an entrepreneur working for yourself. Many people desire to be an entrepreneur, whether it’s a side hustle or to replace their full-time job but hesitate because of the uncertainty around how to manage the financial aspects of running a business. 

This is not something that’s commonly taught which is why most people are so fuzzy around the topic. The biggest question that arises when it comes to the financial side of running a business vs. being a W2 employee, is how to deal with paying taxes, handling tax returns, your earnings, and managing your money overall. We are going to touch on all these topics today plus add in a little bonus topic at the end. 

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Disclaimer: This content is for educational and informational purposes only. Please consult with an accounting professional for direct advice based on your specific business situation.

Transcript

Hello awesome entrepreneurs! You’re listening to Financially Adjusted and I’m your host, Leslie Roth. In today’s episode, I’m going to be talking about the differences between being a W2 employee AND being an entrepreneur and working for yourself. Some people don’t desire to be an entrepreneur and enjoy working for someone else, which is great. Everyone is different. I’m obviously partial to entrepreneurship, as I’m sure you are too because you’re listening to this podcast. Many people desire to be an entrepreneur, whether it’s a side hustle or to replace their full-time job but hesitate because of the uncertainty around how to manage the financial aspects of running a business. 

This is not something that’s commonly taught which is why most people are so fuzzy around the topic. The biggest question that arises when it comes to the financial side of running a business vs. being a W2 employee, is how to deal with paying taxes, handling tax returns, your earnings, and managing your money overall. We are going to touch on all these topics today plus add in a little bonus topic at the end.

If you’ve only ever been a W2 employee before, you likely haven’t thought much about paying taxes w/ exception of seeing large chunks missing from your earnings each pay period and filing your taxes once a year. With entrepreneurship, you will definitely be more tuned into your taxes and what you’re paying, but it’s definitely not as complicated as most people think it is. It just involves some education and planning. 

As an entrepreneur, you will be responsible for sending in quarterly federal and state estimated taxes. Your tax professional or bookkeeper can help you determine what your estimated quarterly tax payments should be, based on your net profit. During your first year in business, you shouldn’t have to worry about this, but in the 2nd year and moving forward, you’ll want to start paying quarterly so that you can avoid penalties and interest. The government wants to collect their money throughout the year! I suggest setting up online accounts with the IRS and your state’s Dept. of Revenue so that you can pay online. It’s easier and faster to pay and you have electronic tracking of your data at your fingertips.  I personally calculate what percentages I’m sending in each quarter based on my net profit. Some people just send in what their accountant has estimated for them at tax time. My only suggestion if this is you is to check in with your accountant if your estimated net profit has increased since you’ve spoken with them at tax time. That way you aren’t coming up short on what was estimated. No one wants a big bill at tax time.

Estimated tax due dates each year are typically the 15th of the months Jan, April, June, & Sept.

As a W2 employee, you will file a simple return with form 1040 each year and it’s usually straightforward. If you are a sole proprietor, you will do the same thing each year and file with a form 1040 by April 15th but you’ll be adding a Schedule C form to your personal filing. This will list out any earnings from your business will then end up on your 1040 form. 

When you have a business, your tax pro will need access to your books and will need your P&L and balance sheet at tax time so they have all the info they need to do your taxes. They will also need to know if you’ve paid in any estimated taxes. This is when it’s super easy to have online sign ins so that you can simply save and print out your estimated tax payments for the year.

Your tax filings get a little more complicated when you have a partnership or are filing as an S-Corp because you will have two tax returns to file. You first need to file your business tax return by March 15th so that you know what your net taxable income from your business is in time for your personal return to be filed by April 15. For a partnership, a form 1065 is what’s filed an for an S-corp a form 1120S is what’s filed. The information from those returns is then used to file your personal tax return with a form 1040.

Even though you have some extra steps with a business, it can feel simple and straightforward once you get used to the rhythm of how things flow. Also, if you have a good tax pro on your side, that’ll make it much easier.

Next, we’re going to compare being a W2 employee to business ownership when it comes to your earnings.

Most people see being in a W2 job as stable b/c they have the benefits, and they have a steady stable income stream. I’ll say that budgeting can definitely be easier when it comes to having that W2 income that stays the same. But having income that stays relatively the same (minus some salary increases here and there), is not necessarily a good thing at the end of the day. It can give a false sense of security. For most W2 employees, there’s a cap on what you can earn but with a business of your own, the sky is the limit on what you can make. 

So, dream big and start that business b/c in a year or so you could be doing triple what you did in your W2 job and that benefits package won’t seem like such a big benefit anymore. DON’T LET GOLDEN HANDCUFFS KEEP YOU LOCKED INTO A JOB THAT PREVENTS YOU FROM DISCOVERING YOUR DREAM OF BEING AN ENTREPRENEUR. Do it smart and transition the way you need to so you can support yourself or your family, but don’t let it keep you from not trying to do your own thing. You can create your own stability and security with your own business. Be sure to check out my last episode called “Choose a Way to Handle Pay”. I talk about systems for paying yourself and touch on how to plan for a steady stream of income through your business.

Also check out episodes 1-3. I touch on all things getting started and money management systems to put into place. 

Educating yourself around starting a business and what that looks like financially will empower you to start and will totally take away the scariness of it all. It’s much simpler than you think, and you ARE capable of figuring it out!!

Chances are if you’ve mentioned starting your business you’ve had some nay sayers chime in about how scary it could be and list out reasons why you shouldn’t. I’m praying you also have lots of supportive people chiming in as well. Our culture can definitely be a little negative when it comes to comparing entrepreneurship with having that “stable” W2 job. I’m here to tell you to do it anyways and ignore the nay sayers. If it’s on your heart and your mind to be a business owner, go for it! Do it smart but tune out the negativity. 

Nothing makes you face yourself like embarking on an entrepreneurial journey. It takes courage and has its ups-and-downs, but it can be one of the most fulfilling things you’ll ever do in your life. I’m here to cheer you on and equip you with the financial knowledge you need to run your small business. Something I’ve found life-changing is plugging into mindset educators and tools. A few people I’ve found super helpful in my own journey have been Krystal Profitt who teaches on all things podcasting, Jenna Kutcher who also teaches on podcasting as well as many other topics like business marketing and mindset. Amy Porterfield who teaches on all things list building and digital courses, and Brendon Burchard who is a high-performance coach. I’ve plugged into his GrowthDay membership, and it’s not just been life changing in a business sense but for my personal growth. They all have amazing podcasts and helpful books that can guide you in your entrepreneurial journey. I’ll include those people I mentioned in the show notes so you can check them out for yourself.

The bottom line is that you’re in charge of your own destiny and you are absolutely capable of handling the financial aspects of running your business so don’t let anyone or anything stop you…including yourself!

Disclaimer: This content is for educational and informational purposes only. Please consult with an accounting professional for direct advice based on your specific business situation.