It’s been a while since my last reader question post. That was the one where I confusingly announced on a Tuesday that I’d be doing reader question Mondays. Well, today I start a new streak of doing reader question posts on Mondays. My apologies for dropping the ball on that, but I took on a full time consulting gig for a few weeks while also running my content business evenings and weekends. It was a busy run.
Anyway, let’s get down to business. Both in the Developer Hegemony Facebook group and through other media, people have asked about some nuts and bolts freelancer/entrepreneur type things. And, after recent videos about creating an EIN and filing for an LLC, the pace of those questions has increased. So, apologies to those who come to this blog looking for rants about the perils of global state or unit testing. Today, we talk taxes.
If I’m thinking of going off on my own, how do taxes work?
Nobody has asked me the question in these exact words. Rather, this is a composite of what various people have asked. So, without further ado, let’s dive right into the least interesting subject on the planet. I’ll do what I can to make it fun.
Mercifully, I am neither a lawyer nor an accountant. Nothing against either profession, per se — they’re just not for me. I mention that here so that you understand the context of this advice.
I am going to describe what I have, myself, done, along with my understanding of how it works and various other options that I might have. I’m pretty confident that I have a relatively complete understanding for a layman in those fields. But there may be finer points that you’d need an accountant or lawyer to illuminate.
In the context of the software world, think of me as a the equivalent of a guy with 3 years of .NET experience teaching newbies. I’ll get enough right to help them a lot, but I might not nail some of the more arcane language points or sophisticated design strategies. Caveat emptor.
Non-US readers, this is also entirely US-centric. I hope some of it helps, though. I’ve had people from other countries tell me in the past that some of my videos/posts along these lines are helpful.
Taxes in the Wage Labor World
For the sake of easy math, let’s say that you take a job for $120,000 per year. Let’s also say that the employer pays you monthly, at a nice, round $10,000 per month. That should make it easy to figure out how much you’ll pay in taxes, right?
Wrong! There’s no figure round enough to make it easy to figure that out in the US. You go to a calculator like this, expecting to type in $10,000 per month and seeing that you owe something like $2,200 per month in taxes. Instead, it wants to know whether you’re single, how many “dependents” you have, and something about “exemptions.” And that’s a simple one. Some probably ask you about your mortgage, whether you live in a flood plain, and how many blind uncles named Dwayne you put in rest homes last year.