Salaried Vs. Self-Employment

Planning

Salaried employees make a specified amount in exchange for their work. Self-employed people do not always earn a consistent income. If business is slow or you invest in unsuccessful new products or markets, you may earn very little even though you spend a considerable amount of time working. It is much easier for you to plan your financial future if you are a salaried employee than if you are self-employed because you can count on bringing home your designated salary each week.

If you work for a salary, you don't take much of a financial risk when you go to work each day, although you may opt for a lower salary with a more stable company rather than a higher salary with a company that has less of a track record. If you are self-employed, you not only cannot predict how much money you will earn each month, but you also run the risk of losing personal funds that you invest in your business. In fact, many unsuccessful entrepreneurs find themselves with less money than they had before they started their companies.

If you work for a salary, you can be assured of earning a certain amount for each day or week that you work, but you probably won't earn more than that amount, unless you receive a bonus or a commission. If you are self-employed and your business endeavors go well, you open yourself to the possibility of earning considerably more than you would at a salaried position. Self-employed people can be wildly successful, sometimes earning enough during a short period to compensate for extensive periods of losing money.

It is much easier to predict your tax burden if you are a salaried employee than if you are self-employed. Calculating income tax for salaried employees can be as simple as consulting an IRS tax table that lists the amount you must pay relative to the amount you earn. Computing your tax as a self-employed individual involves tallying all of your business receipts and then subtracting all of your business expenses over the course of the year. If you are self-employed, you must make estimated tax payments, which are basically educated guesses about how you owe based on educated guesses about how much you will earn.