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Is Self-Employment Right for You?

For some time now, the media has highlighted the so-called "Great Resignation," where legions of people have left their former jobs. If you're among those who've resigned or you're thinking about quitting, you may be considering a shift to self-employment. Before making the leap, though, you need to consider several factors that could be pros or cons, depending on your circumstances.

Being Your Own Boss

The notion of being your own boss is often a major draw for those contemplating self-employment. You may dream of not having to sit through unproductive meetings, deal with difficult co-workers, comply with a dress code, or follow inefficient processes and procedures. But it's inaccurate to say the self-employed don't have to answer to anyone — they still must answer to customers or clients who often have thoughts on how their work should be performed.

Of course, if you're self-employed, you generally can pick and choose your customers or clients. Unlike traditional employment, you can turn down work you don't like or don't feel is in your wheelhouse. But keep in mind that you'll have to land new business yourself. That type of networking and hustle requires time away from actual paid work.

You're also responsible for any advertising and marketing, as well as other administrative tasks, such as accounting and collections. You can outsource certain tasks — such as creating a website or preparing sales and income tax returns — but you'll have to pay for those services.

In addition, some people truly need the structure of a workplace to do their best work. They count on their manager and co-workers to keep them on track.

Cash Flow

Traditional jobs come with regular paydays, and you're typically paid the same amount every time. You have no such guarantees when you're self-employed. You could experience significant ebbs and flows in income, especially early on, before you're established. This can create trouble when bills come due, particularly if clients drag their feet on payment or skip out altogether.

You can reduce such risk by pursuing diverse clientele, negotiating long-term contracts and engaging in careful budgeting. It's also prudent to set aside an emergency fund or line of credit that can help when cash is tight.

Self-employed people have the luxury of setting their own prices. If you're in a competitive industry, you may be limited in the prices people are willing to pay. But, if you develop a good reputation, customers or clients might seek you out and willingly pay a premium.

Scheduling Matters

Self-employment can mean you aren't chained to an eight-hour workday or other schedule set by someone else — or to a specific location. You often can work at home, in a coffee shop or while traveling. Once your business is established, you may be able to scale it to work as little or as much as you like. You also free up the time you'd otherwise spend on commuting (and save on the associated costs).

This flexibility makes it easier to schedule around other priorities, including time with friends and family, exercise, and other hobbies. For example, you can work while your kids are at school or sleeping.

However, this can be a trap for the unwary. Flexibility makes it difficult to separate your work and personal lives. So, it's important to set boundaries if that's important to you. Even though you always have some work to do, find time to relax. Self-discipline is essential. And be aware that many self-employed people wind up working more than they ever did as employees.


When it comes to taxes, there's good news and bad news. On the one hand, you can claim a wide variety of business-related expenses that you can't as an employee, including:

  • Equipment,

  • Tools,

  • Office furniture,

  • Supplies,

  • Insurance,

  • Phone and internet,

  • Business-related vehicle expenses,

  • Part of your expenses for business meals and travel, and

  • Part of your rent or mortgage and utilities.

On the other hand, you'll pay more in payroll taxes. As an employee, you and your employer split the payroll taxes (Social Security and Medicare). If you're self-employed, your payroll tax liability typically doubles, because you also must pay the employer portion of these taxes. The 12.4% Social Security tax applies to earned income up to the Social Security wage base of $147,000 for 2022. There's no limit on the 2.9% Medicare tax. The employer portion of self-employment taxes paid (6.2% for Social Security tax and 1.45% for Medicare tax) is deductible above the line.

Important: Above-the-line deductions reduce your adjusted gross income (AGI) and your modified AGI (MAGI). These figures may help you qualify for other tax breaks.

You also might owe 0.9% additional Medicare tax if your net earnings from self-employment exceed $200,000 ($250,000 for married filing jointly and $125,000 for married filing separately). Because there's no employer portion of this tax, the additional Medicare tax doesn't double for the self-employed. But this also means that no portion of the tax is deductible above the line against self-employment income.

Self-employed workers also have to file Form 1040-ES to pay quarterly estimated taxes. These taxes are generally due on April 15, June 15, September 15 and January 15 of the following year. If you fall behind, you'll owe interest and penalties.


The lack of employee benefits is a substantial downside to self-employment. You might miss paid leave, health insurance and retirement contributions. You'll need to earn more to cover those yourself.

But you can plan vacation and other time off around your slow times and take more time than a boss might give you. The Affordable Care Act and subsequent federal legislation have made individual health insurance more affordable. Plus, you can deduct 100% of health insurance costs for yourself, your spouse and your dependents, up to your net self-employment income. You also can deduct contributions to a retirement plan and, if you're eligible, a health savings account for yourself. And you can tailor benefits to your specific needs — you aren't stuck with the options offered by an employer.

Think It Through

You have much to weigh if you're considering self-employment. Some determinations — like whether you have the requisite self-discipline — you need to make on your own. But your CPA can help you evaluate the potential financial and tax consequences.

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