Self-Employed Tax Mistakes to Avoid

March 7, 2022
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Business: 7 Step System to Taking Your Course from "Idea" to First Paying Customer [Thread]

Earning income through a paid course is a staple in the creator economy.

But for every successful course, there are thousands that fail to attract any paying students.

This thread from Brandon Zhang highlights 7 ways to building a successful course - a few gems:

Identify what you want to teach

  • What advice are people constantly asking you for?

Imagine your ideal student

To figure out the attributes/desires of your ideal student, ask yourself:

  • What are their aims?
  • What are their obstacles?
  • What type of people is your course not for?

Market the process

  • The old adage: Start marketing before you think you need to.

Usually, it’ll take people 3-4 times hearing about your offer before they convert.

Money: Are You Making One of These Self-Employed Tax Mistakes? [Blog]

Taxes are awful, but making mistakes with them is worse. This post from Collective walks through a few of the biggest mistakes to avoid:

Underestimating and underreporting income

When you're self-employed, you're responsible for withholding taxes from payments to yourself. They must be estimated and then paid quarterly to the IRS. Failure to do so can result in fines and penalties.

Having clean books and accurate financial reports can help ease some of the stress that comes with tax filing.

Not separating business and personal expenses

For newly self-employed individuals, this is one of the most common mistakes - and one of the easiest to correct. If you're a sole proprietor, you can generally just open a separate checking account and use that for all business income and expenses. If you have an LLC, you can apply for an EIN (which is like a social security number for a business) and once received, you can open separate business bank accounts.

The biggest reason you want to have separate accounts is so when tax time comes, you can easily see your business expenses and income to determine what can be written off to lower your taxable income.

Failing to pay and file taxes by the due date

If you fail to pay taxes when they're due, you'll have to pay penalties.

Having an accounting system in place makes it easier to stay on top of financial tasks and you may be noticing a common theme here: Staying organized and being proactive is key to making taxes less of a headache.

Taking the wrong business deductions

A common phrase thrown around after starting a business is "oh we'll just write it off". Not all expenses qualify as deductions and to be clear, writing something off doesn't mean that the expense disappears. It simply means that IF the expense qualifies as a deduction, the cost can be written off against your income - for example:

If you had $100,000 in taxable income and a $1,000 deduction, it would reduce your taxable income to $99,000 and you'd owe taxes on $99k.

Strategy: How Khe Hy Left Wall Street and Turned a 36-Person Email List into a $500,000 Creator Business [Blog]

In this extremely well-written article, Rachel Burns combines insights from Khe along with storytelling to paint an accurate picture of what the thought-process and work behind building a creator career looks like.

One of my biggest takeaways: The importance of consistency. Khe's success is no mistake (and far from overnight) as he's been publishing his newsletter for 327 weeks.

What's "retirement"?

Contrary to popular belief, retirement is more of a dollar amount than it is an age-based milestone.

What I mean by this is that as a society, we have a partially inaccurate view of what retirement truly looks like.

Do you know why we traditionally view retirement as age 65?

Because in 1935, the Social Security program was created and it outlined specific rules & requirements for aging workers, with one of them being that workers would receive their full Social Security payouts after reaching age 65.

That’s it.

And they’re pushing the number farther back over time as life expectancies increase. The current retirement age is now 67(!) for those born after 1960.

So to begin reframing what retirement looks like, let’s first define the term:

To “retire” is to stop doing something, or to withdraw yourself from something.

You can “retire” a bad habit.

You can “retire” from your 9-5 that you hate, and still work as a freelancer afterward.

You can “retire” from a constant content cadence and fall back into a more structured, episodic series.

Traditionally, retirement is viewed as the act of withdrawing yourself from the workforce.

However, I believe that retirement can be viewed as a period of time in your life where your use of capital - time, money, and energy - is best aligned with your desires.

(h/t to Carl Richards for the beautiful definition of “capital”)

Too often we fall victim to the mindset of “if I keep doing this a little longer, I’ll finally be able to quit my job and live the life I’m dreaming of”. Truth is, complacency and comfortability sets in day by day, making it that much more difficult to pursue what you truly want.

Which is why I think as creatives, we’re well positioned to build a career that we don’t need to completely “retire” from.

We can retire from the 12 hour days and constant creation at some point, but we may never want to retire from the craft itself. It’s hard to step away from something that you’re truly passionate about.

Ultimately, what I believe we should be chasing is flexibility and optionality, not an arbitrary age formed around outdated regulations.

There are many ways to increase your financial flexibility so with that, here are a few steps to beginning planning YOUR retirement:

Think

Before diving into tactics and strategies, take some time to think about what retirement means to you. For example, I personally enjoy writing and creating and believe that my "retirement" will still consist of those two things. So I'm trying to build a financial foundation around me that will allow me to do those two things without worrying about the financial benefits from doing so. I also want to travel whenever I want so as long as I can write, create, and travel without being pressed for income, I would consider myself "retired".

Work backwards

Going back to the first sentence of this section “retirement is a dollar amount”, this step is where you begin to figure out what that dollar amount looks like. This can be done by evaluating your current lifestyle, income, investments, and expenses and comparing them with where you want to be. Those numbers will then give you a starting point that allow you to begin creating a financial plan.

Do you need to have $1,000,000 invested and $40,000 of recurring annual revenue to live out your dream life? Or maybe $3,000,000 invested so then there's no need for secondary income?

There's no right answer, only what's right for you and your life.

Plan

After determining your personal numbers, you can then begin creating a plan with action items and strategies to reach those goals.

For example, if your goal was to have $2,000,000 saved because it would provide you with enough income to live the life you want, you would need to figure out how much to save each month and each year to reach that goal within your desired timeframe, select which accounts to place money in, pick investments, and then make adjustments along the way.

You can only begin planning and taking the right actions after you've figured out what you're working towards.

Figuring all of this out can be confusing and time consuming, so if you ever decide that you want to work with a financial professional, I created a quick free guide:

7 Questions to Ask When Meeting With a Financial Planner

Also read: How much does a financial planner cost?

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Keep creating,

Treyton DeVore

treytondevore.com

creatorbread.com

Treyton DeVore

Treyton is a creative entrepreneur, writer, and financial planner.

He's been featured in Morning Brew, NerdWallet, Marketwatch, and more.

treytondevore.com

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