Thursday, February 15, 2018

The Pajama Tax

It's tax time. And thanks to the identity thieves and Equifax, we are all trying to get our taxes done a little early this year before someone else claims a big return in our name. I am not sure of the likelihood that it would actually happen, but the media has me thinking enough about it that I decided to start my taxes early too.

Being self-employed has changed my life in so many ways. Most of them have been positive changes. I can't really say the same about my taxes. Last year, I earned so little income from my writing business that it wasn't that big of a deal to do my taxes. But this year, I started to earn more money and I learned a few things that I didn't really understand last year.

The biggest lesson was something called the self-employment tax. When I started planning for my taxes, I took the money I earned writing for the year and multiplied it by the tax rate for that income bracket to come up with an estimate of what I might owe this year. But when I started to actually input the numbers into TurboTax it was coming out much higher. Almost twice as much as I had expected to pay. Even with my deductions. 

At first I thought I had entered the numbers wrong, so I did it again. But it came out the same. As I was looking through the details, I saw a line item called the self-employment tax. It turns out that when you are self-employed you not only have to pay income taxes, but you also have to pay your own Medicare and Social Security taxes, which account for an additional 15% of your income. 

So in fact, I did have to pay twice as much as I expected. We all have to pay Social Security and Medicare taxes. But if you work for a company, they deduct it directly from your paycheck and they actually pay a portion of those taxes for you. Employers are required to cover 50% of those taxes and the employee covers the rest. Now that I am self-employed I need to cover the entire amount.

None of my clients take out any taxes when they pay me, so it is up to me to figure everything out on my own. Which brings me to the next lesson I learned. When I did my taxes this year, TurboTax said that I owe a penalty of $196 for under-estimating the taxes that I owed to the IRS throughout the year. I thought I could just wait and pay all of my taxes at the end of the year, but the IRS expects that if you are self-employed you will pay estimated taxes to them throughout the year.

Since I did not pay any estimated taxes in 2017, I have to pay everything at the end of the year. That is 30% of my income, as opposed to the 15% that I was expecting, plus this year's penalty for not paying taxes throughout the year like I was supposed to. On the same day I was working on my taxes, the health care bills from my surgery were posted online. Needless to say, that also cost a lot more than I was expecting to pay.

As I sat in front of the computer staring at this less than positive financial news, I felt defeated. I started to wonder how I could ever make a living as a self-employed person and whether I had made a mistake leaving the safety and comfort of a salaried job that included full health care benefits. I started to worry that at some point my savings would run out and I wouldn't have a nest egg to cover unexpected costs like my surgery or these taxes.

It wasn't a great moment for me. All along I have felt so empowered running my own business and getting clients and sending out invoices and watching the money come in. It is not a lot of money compared to what I used to make, but I have been doing it on my own terms. 

In that moment, I wondered if I could really make this work. And I thought about whether I should start looking at other options. One of my clients had offered to hire me full-time, but I told them I was happy working as a freelancer. Maybe I should call them up and say yes.

Then I added up the actual hours I worked last year and I realized that I am working about 20 hours a week as compared to 60 or 70 hours a week in my old job. And I am doing it all in my pajamas. And going to yoga on Tuesday mornings. And going to Target in the middle of the afternoon if I need to. I am not accountable to anyone, except myself. And I am happy. For the first time in my life, I can honestly say that I love what I do. And I am proud of what I do.

So I made a decision not to give up and to keep moving forward. If I am only working 20 hours a week then I have room to take on more clients this year. And maybe I can get an increase in my rates from some of the clients who are really happy with my work. 

The last two years, I focused a lot of my energy on becoming a minimalist and consolidating my expenses so that I could afford to work for myself. Now it is time to focus on increasing my income so I can keep doing the work that I love.

Being self-employed doesn't mean that I don't have a boss. It means that I am the boss. I am my own employer. And I have to treat myself like an employee. I am going to set up quarterly estimated tax payments for this year that include Medicare and Social Security taxes. And I am going to set up new monthly income goals that take into account all of the taxes I have to pay and still leave me enough money to live my life.

The self-employment tax makes me feel like I am being penalized for working for myself, when it is actually a gift. It is the best thing that has ever happened to me. And it is worth fighting for. So, I have renamed the self-employment tax. It is now called the pajama tax. It is the extra tax that I pay so I can work at home in my pajamas.

And when you really think about it, how many people out there who work for a big company would gladly give up 15% of their salary if they could do their job at home in their pajamas every day? I bet a lot of people would take that deal in a heartbeat, if their only boss would let them. I think I am pretty lucky. I have a great boss. 

Wednesday, January 3, 2018

New Year's Resolutions

The new year is a time of reflection. For most of us, that means reviewing the year that has passed and planning for what we want to achieve in the coming year. As I've mentioned before, I keep a special new year's journal that I only write in once each year. (Except for 2011, but that is a whole other story.) I use this journal to express my thoughts about the past year and write my new year's resolutions.

On New Year's Eve, or sometimes on New Year's Day, I pull out my journal and read the entry from the year before. Then I go through my resolutions to see which ones I've kept and which ones I let slip away. It is just a snapshot in time, but it always helps me to gain a broader perspective on my life that I can't get from reading through my daily or weekly journal entries.

New year's resolutions are similar to setting an intention in my yoga practice. Except that when I set an intention in yoga class, it is usually something I am seeking from the universe. Whereas, when I write my new year's resolutions, they are usually something that I intend to do myself.

For the past several years, I've always had big changes that I wanted to make in my life around the new year. But this year feels different. Other than losing five pounds, there is nothing major that I want to change about my life. I love my job. I am in a happy relationship. I like where I live. Basically, I wish for all of these things to continue in 2018. 

That feeling of contentment with my life is not something I have experienced before, at least not on this level. It seems like I have always been striving for something. Now I am finally able to be happy with things as they are. 

It's not that I haven't had times in my life where I've been happy. I have been happy, at least with certain parts of my life. But until now I never felt like I was where I was meant to be or doing what I was meant to do. I have never truly enjoyed every aspect of my life. It is a wonderful feeling.

And yet, contentment does not mean that my life is perfect. I am still experiencing grief from losing my Dad. And in two weeks, I will be having surgery to remove skin cancer from my face. Of course, I would prefer that neither of those things had to happen. But those things are not within my control. And they are not things I can make a resolution to fix. 

Despite those challenges, which are a part of life, I still feel content. I feel like I am finally where I belong and that I am investing my energy in the things that are meaningful to me. I am not being wasteful or decadent in my spending. I am grateful for everything I have. I am deeply loved and I am able to deeply love another person in return.

As I contemplated my new year's resolutions for this year, I started thinking about where I was five years ago. Or ten years ago. And I wondered why I wasn't able to make these changes sooner, even though I had a pretty good idea back then about what I wanted (or at least what I didn't want) in my life. Why did I stay in jobs that didn't make me happy? Why did I stay in or keep going back to relationships with people who I did not love and who didn't truly love me?

Of course, the answers to those questions can be very complicated or very simple, depending on how you look at it. The complicated answer encompasses all of the excuses, expectations and false beliefs about myself that I held for years. The complicated answer involves a laundry list of fears, worries and doubts. The complicated answer includes the opinions and priorities of so many other people that I had mistakenly adopted as my own.

The simple answer is that I was not ready. I was not ready to see what I needed to see. I was not ready to learn what I needed to know in order to make my life be the way I knew that I wanted it to be. 

The codependent person in me wants to share everything I have learned in the hopes that it might inspire someone else to make the changes that they want to make in their life. But I know that is not how it works. Everyone has to evolve at their own pace. And I am continuing to evolve. It's not like I have everything figured out. There are always surprises in life that can change things, even when we don't want them to change. Life is constantly in motion.

That said, I was thinking about this quote today:

We don't know how much time we have on this earth. We hope that it will be a long time, but no one knows for sure. I have been trying to live my life in the present moment. Not worrying too much about the future and not focusing too much on the past. It is not always easy to do that. My mind likes to wander to all sorts of interesting places.

I think a lot about a conversation I had with my Dad before he passed away. I told him that I was happy in my life and that I was so grateful that he got to see me this way. It was so hard to lose my Dad, but I think about how much harder it would have been if I was working 10 hour days at a job that made me miserable. It would have been a devastating wake up call to remind me that life is short and I should do whatever makes me happy.

At least right now I am doing it. And I am so grateful. Of course, that does not stop me from making my new year's resolutions. Aside from dealing with those pesky five pounds, I ended up with a very different list of resolutions this year. 

Instead of focusing on things I want to do, I am focusing on how I want to be. As I was writing in my journal on New Year's Day, I came up with a list of words that inspire me. They represent the attitudes, behaviors and feelings I would like to experience in my life and reflect in my interactions with other people.  

Here are just a few of my words for 2018: Kindness, Compassion, Gratitude, Authenticity, Peace, Joy, Love and Service. For some reason, the word service really stands out for me this year. I wonder how I can be of service to others. 

Two years ago, I set an intention to make a living as a writer, but that did not make me a writer. My intention had to line up with the intention of the universe. While I acknowledge that I did a lot of the work to get myself here, I also recognize that I could not be living this life (working at home in my yoga pants, for example) if it wasn't for all of the people who helped me along the way. Ultimately, I am here to be of service to them. 

I took all of the words from my journal and I typed them onto a page, all in different fonts. I hung it up in a few strategic places around our apartment. It is just one small way of connecting with my resolutions for this year and keeping myself grounded in the things that I value most.

Wherever you are in your journey, I wish you a very happy and peaceful new year. I hope that you find whatever it is that you are seeking.