For at least the
past 6 months I've been asking every financial or business leader that
I speak with what the 'new economy' will look like after this current
recession has taken its toll and reshaped America's economy. I've been
surprised at the low number of items I've found contention on–most are
in agreement. It seems that the code for the
new economy in America is in fact '1099'. There is also a consensus
that like every major recession before, there will be many millionaires made
during this period despite the incredible loss of employment and income.
Technically,
form 1099 is the Internal Revenue Service form on which individuals
report independent contractor income. If a person receives more than
$600.00 from any one entity during a calendar year, that entity is
required to report the income on form 1099 and give a copy of this form
to the individual. If the individual does not report this income on
their taxes, the IRS recognizes this and questions the individual on
their unreported income.
What does this have to do with the new
economy? Well, basically, the time has passed where a person can
expect a lifetime of employment from one company. In the New Economy,
a company will only pay for services when it is financially beneficial
for the company to pay for someone outside of the company to perform
such services. In layman's terms, it's a hire-as-needed arrangement.
There are definite downfalls to this arrangement, just as there are
definite advantages to this arrangement. My hope is that you may
exploit the advantages of this arrangement to create a better living
environment for yourself and your family than was otherwise feasible.
Let's explore the problems and the benefits of being a 1099 contractor.
The problems of being a 1099 contractor:
You might not know where your next meal is coming from.
It's true. Without a consistent paycheck, you will have to earn every
dollar that you are paid. This may be a bad thing, or it could be a
good thing if you can earn your income without having to share it with
your boss or the company that you work for. It is true that 90% of
$100,000 is better than 10% of $100,000, but you have to work for it.
Your work schedule is not consistent.
You might have to work for 24 hours straight to meet deadlines, then
you might have 3 weeks with nothing to do but read up on industry
trends to keep yourself current. The cool thing is that you can read
up on industry trends by the pool while your kids are splashing and
swimming.
Your employee benefits are now yours to provide.
I've found this to be the hardest part to overcome. Without a group
insurance plan, you are forced to buy an individual insurance policy.
This issue alone might cause you to support nationalized health care, or
ask your spouse to work outside the home so that he or she can provide
group insurance for your family.
Without sick pay or vacation pay, you might have to take a laptop
on family vacations, along with a portable internet connection (all
tax-deductible, of course). This means that at 6 am while your family
sleeps, you are answering email and making sure business is going
smoothly. Vacation pay and sick pay are things of the past, but it's
not that hard to keep up with email from the bedroom of your vacation
resort. Personally, I suffer from occasional back problems. This
forces me to answer email from my recliner in front of my 52 inch LCD
TV every few months. Oh the horror!
You will need to market yourself.
To some, this comes naturally. To the vast majority of the rest of us,
we have to work hard to learn marketing. Subscribe to industry or
trade magazines and newsletters and learn from what works. Play around
with different advertising vehicles to learn what's popular and what's
not. Hang out with others who have accomplished what you want to
accomplish, and learn from them. Read, read, read. It's all part of
the biz.
The benefits of being a 1099 contractor: A wide range of tax advantages.
Want to go to San Francisco for the weekend? There are hundreds of
reasons to call this a business expense! Mileage for your car,
supplementing your restaurant bill when you eat with possible 'clients', paying your
kids for the help they perform around your 'office', these are all at
least partially tax deductible! Become familiar with IRS form 1040
Schedule C. As a small business owner, it is your friend.
Your work schedule is flexible.
Work like a madman for 3 weeks, then go to Disney with your kids (or grandkids) for a
week. Go to the gym every morning and watch the commuter traffic get
all jammed up on the morning news shows, while you are taking care of
your physical health better than 95% of the rest of America. Be home
when your kids get off the school bus just in case you receive that
important phone call. Stay home with your kids over summer vacation
while you work on that special project. It takes some getting used to,
but it's not all bad!
You control your own destiny.
You're never going to get rich working for someone else and you know
it. Working for yourself opens up a whole range of possibilities that
you otherwise would not have a chance at. You might earn only $1,000 a month for a few
months and then you have a $50,000 month, followed by more low months before you hit the jackpot again. This is typically how it works, but you have to be committed to making it happen.
What if You Are Already Employed?
Be thankful! The benefits of operating a small business are the same even if you have to operate it on the side of your regular employment. Having a side business could be your ace in the hole, allowing your to conduct yourself at your job with confidence, knowing your have other options.
Bottom line:
My
experience is that as an independent contractor I might work for 20
businesses at a time. The top 5 of which will provide a combined
income greater than I've ever received before as an employee. Is it
worth it? You bet it is! I work in partnership with my wife, which
allows us to spend a lot of time together. My kids have a great
example of what it's like to deal with the real world in business, not
to mention the fact that they see why it is important to get a good
education. Not everyone working for 1099's makes a decent living, but
I've been fortunate in this area. I'm convinced that this is the new
economy, and I'm ready and willing to take advantage of it.
Are you ready and willing to take advantage of the New Economy?
Thanks for writing this great article. As the owner of my own small business, I think the benefits of being responsible for my own paycheck far outweigh the negatives.
I think one key is to make sure that you are doing 1099 work that requires face to face interaction, or at the very least requires extensive interaction in native English. Anything else can and is being outsourced to places like India where substandard wages are the norm. I've been undercut on my web copy writing to the extent that the only business I get at this point is copy that requires a live interview with a client. What most web developers won't tell you is that much of the web copy is being written overseas by English fluent people. One job I lost was to a UC Berkeley educated guy who moved back to India to live and was willing to write ten dollar web articles. These folks are living in countries where they can live on a lot less than we can here. I even conducted an experiment to determine how easy it is to get web copy written overseas. Easy-peasy, lemon squeezy. I subbed out four articles to a lady in india for a fraction of what I was paid for them. I only had to run a craigs list ad and I had several offers from Indian writers. My only job was to tweak the language but all the research was done for next to nothing and I paid her by PayPal. I know for a fact that a company called WSI (We Simplify the Internet) subs all of their web architecture development work to India and to other overseas internet sweatshops. I also know for a fact that some Search Engine Optimization packages are also created using research created by Indian workshops for pennies on the dollar and sold here at a premium.
Of course, on the bright side, if the economy continues to tank, maybe we will all be living on next to nothing and all the business will come back here...
Despite everything, I've been a consultant for ten years and after letting go of the side of the pool, who wants to go back there?
I think part of what you are saying is true,part is all ready here even in the UK. The fact of the matter is until corporate and political greed is stopped nothing will really change
This is an excellent article. Well done, clear and precise. I agree with you 100%, there is no other way we can overcome this economic crisis but to become a 1099 contractor. Brilliant!
I am one of those 1099 people and I love it. Being home with the kids and making my own schedule. Of course, the kids are out of school tomorrow I may have to come back and read this a few times to remind myself how lucky I am. :) Thanks for the article, very uplifting!
So interesting to learn how things work in other countries. Very informative. We have PAYG (pay as you go) for the contractor and self-employed folks. Similar, and the insurance we have to take for is WorkCover in case employees are hurt on the job. Health insurance is a personal matter not an employer matter. We all pay a specific tax for health cover which covers doctor and hospital charges, but some things are not covered in full. If we want private insurance, we organise and pay that ourselves. Some benefits, but you can still end up paying additional costs. Bit off the point, sorry! lol
Bruce-Great article! It gave us a lot to think about! Wish it was more consistent as far as income goes, but maybe one day it will be! thanks for sharing!
Don't forget to incorporate for tax benefits and asset protection. You can use an corporation or LLC. It is best to get an attorney experienced in corporations to draw these up for you.
Of course, it depends on what sort of industry you're in. For example, technology skills tend to make it easier to do this sort of thing.
In my opinion, those who do best in any sort of economy are those who provide value. In order to be payed, and payed well, you have to provide something that people find value. Rather than go work for a corporation filling out TPS reports, I'd rather build up a skill set that people need. In a sense, it's about how you can help people.
Thanks Bruce. I have been employed as an elementary principal for the past 18 years. I am new to this whole, "Having my own business" thing. Your article was helpful to me as a start up guy. Thanks!
» left by Rod from Beautiful Arkansas (110 days 7 hours ago.)
Right on the money Bruce! Been an independent contractor my whole adult life and could never be a 9 to 5 type. God Bless the USA where we can make our own opportunities!
» left by Dr Clarence Rucker, Jr from MI (61 days 4 hours ago.)
Thanks Bruce, it sounds like what my Mother use to say, "like is a gamble baby, you are going to win and not win." As I grew I understood what she meant, "everything has a season."
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