Two years after quitting my job: 2013 in review

http://nathanbarry.com/2013-review/

by kanamekun • 13 years ago

169 88 13 years ago

I subscribe to Nathan's emails (some of the only emails I read regularly, they're that good and useful btw)and was really happy to read he had such a successful year. But I was also saddened to see that he admitted to not having as much money in his bank accounts as he had hoped or planned. He mentions that taxes were huge, but being employed rather than self-employed myself, is he paying that much more in taxes than he would be if was just a salaried employee at a regular company?

nugget• 13 years ago

He admits to lifestyle creep as his income increased. It's not what you make, it's what you spend. That's the best personal finance advice I ever received, but very unintuitive for most people unfortunately.

aaronblohowiak• 13 years ago

It's not what you make, it's what you spend.

I've heard this as "It's not what you make, it's what you save" which puts the emphasis on building wealth.

nathanbarry11• 13 years ago

Yep, it's pretty much just spending more on lifestyle. I grew up relatively poor (for my area) so I always thought I'd live on just a little bit of money, even if I had far more. That didn't really happen like I thought.

But I have zero debt, no financial obligations, and $50k in the bank, so I'm doing fine. Just not what I would have expected after a year like 2013.

skittles2• 13 years ago

The self employed pay 15.3% of gross income to FICA and Medicare taxes. This amount cannot be avoided (no tax breaks). Employees pay roughly half this percentage. It's also very easy for the newly self employed to see the money rolling in and spend it. One has to be disciplined enough to set aside enough for taxes in a separate account.

stirno5• 13 years ago

This isn't necessarily true. Its fairly common to have an S-Corp (or LLC filing as S-Corp) dodge a significant chunk of the self-employment tax by paying a lower salary and then shareholder distributions for the rest.

Balance is important here as the IRS watches these situations closely, but any decent accountant should help someone down this path.

petercooper2• 13 years ago

I always found the US self employment tax curious and wondered if it dissuaded people from being self employed if they had the choice (even setting aside the health insurance situation).

Here in the UK, the self employed pay less (9% vs 12%) in the equivalent tax (called National Insurance here) than the employed, with the tradeoff being that they can't claim various state unemployment benefits (for obvious reasons).

dragonwriter5• 13 years ago

The self employed pay 15.3% of gross income to FICA and Medicare taxes. This amount cannot be avoided (no tax breaks). Employees pay roughly half this percentage.

Everyone, effectively pays 15.3% of gross SS-covered wages up to $113,700 and 2.9% on income above that.

If you aren't self-employed, exactly (not "roughly") half of that (the so-called "employer's share") is not directly visible, while half of it is reflected in payroll deductions.

zefhous2• 13 years ago

To be more precise, my understanding is that it's not gross income, but net profit. So, expenses are not taxed.

Also, 92.35% of that profit is taxable, and as dragon writer said you stop paying FICA at $113,700 and then you play only 2.9% for Medicare.

Here are examples of self-employment tax at different levels of income:

    $100,000 - $14,129.55 in taxes, an effective rate of 14.13%
    $200,000 - $19,455.10 in taxes, an effective rate of 9.73%
    $300,000 - $22,133.25 in taxes, an effective rate of 7.38%

dkokelley• 13 years ago

"...is he paying that much more in taxes than he would be if was just a salaried employee at a regular company?"

Not quite. Some taxes are paid by the employer, and some taxes are withdrawn directly from your paycheck. When you are self-employed, you see exactly how Uncle Sam gets both sides of the action.

wmeredith• 13 years ago

Yeah, this was quite the shocker for me once I started making serious side money. Personal income taxes are about 50% in the US. (Which, by the way, would be totally fine with me if it funded infrastructure and social safety nets. Unfortunately, the vast majority of that goes to wars against nebulous foes, i.e. drugs, terrorism, etc...)

jpatokal3• 13 years ago

Tax-wise, the US is among the worst places to be self-employed. Per this little calculation of mine, an IT entrepreneur earning $100k would keep >99% in Singapore, but <57% in SF. (Massive caveats apply and are enumerated in detail in the article.)

http://gyrovague.com/2013/10/30/half-the-donut-why-an-entrep...

gamblor9562• 13 years ago

I was going to rebut the linked article, but it has so many basic factual errors that it's easier to say that the article is completely useless. Suffice to say, when you cherry pick the financial considerations included in your "model", it's easy to reach whatever conclusion you want.

eru• 13 years ago

I don't know about this calculation, but I can tell you that as a salaried employee in Singapore at the local equivalent 100k USD a year, you'd pay around 5% in taxes without any deductions necessary. (That's around my situation.)

EdwardDiego5• 13 years ago

Tax-wise, the US is among the worst places to be self-employed.

Singapore's a bit of an outlier - the government owns one of the busiest ports in the world, thus requires less income from tax compared to others.

If you compare the US to other Western democracies, how does it fare?

dmourati2• 13 years ago

Makes me want to write a book! Have to wonder what I know that isn't already out there in published form.

peacemaker• 13 years ago

There are an unlimited number of books out there that you haven't published yourself :) Just write about something you know and enjoy the process.

dmourati2• 13 years ago

Thanks! I've found a book by Guy Kawasaki called APE that discusses self publishing. http://www.amazon.com/APE-Author-Publisher-Entrepreneur-How-... He references OP's book as an example. I love when things cycle back on themselves like that.

nicolethenerd• 13 years ago

What app is that "Did you write 1000 words today?" a screenshot of?

fuddle• 13 years ago

It's the Commit app, also made by Nathan: https://itunes.apple.com/ca/app/commit/id473527073?mt=8

nathanbarry11• 13 years ago

Yep. I just redid the app for iOS 7. I guess that should have made it into the year in review post.

zefhous2• 13 years ago

I plugged his numbers into a Numbers spreadsheet I use for estimating my taxes including self-employment tax. This should be the maximum that he would owe for 2013, though there is surely more that he can deduct.

It accounts for his wife and child, but does not take into account any personal deductions like mortgage interest, donations, or anything else. The state rate is approximately correct for Idaho where he lives though the state uses brackets below $10,000.

Just from the amount of deductible self-employment tax he's close to using itemized deductions, but would have to add more personal deductions to get to that point.

    Business income: $256,725.00
    Business expenses: $65,000.00

    Self-employment tax amount: $19,233.48
    Self-employment tax effective rate: 7.49%

    Federal tax amount: $34,625.50
    Federal tax effective rate: 13.49%

    State tax amount: $12,463.45 (assuming flat rate of 7.4%)

    Total tax amount: $66,321.43
    Total tax effective rate: 28.38%

Here's a screenshot of the sheet I used: http://cl.ly/image/1N3M3U3Z2X2x

chiph• 13 years ago

Nathan needs to get a CPA to do his taxes. I finally got one about 2 years ago and had him look at some of my older returns. Turns out I wasn't accounting for rental property income correctly, and he was able to get me several thousand back (plus interest!) from the IRS. Totally worth it.

WalterBright• 13 years ago

I agree. With the amounts he's dealing with, a CPA is necessary.

nathanbarry11• 13 years ago

I actually haven't done 2013 taxes, just my estimated payments for the year. I was expecting to make a little more, so my estimated payments should be a bit high.

I do have a CPA who will do my actual taxes.

narrator• 13 years ago

Are you living in the U.S? If so, what about health insurance and other benefits you had to provide for yourself? I'd really like to see how it compares to your old job after everything.

nathanbarry11• 13 years ago

I have a $280/month plan that has a $5,000 deductible. Most doctors visits are covered entirely, and a few have a $35 co-pay. That plan includes myself, my wife, and our 2 year old son.

We are all quite healthy, so the plan is pretty cheap. Unfortunately it is going up to about $375/month with a slightly higher deductible starting next year.

With my previous job they paid for a plan that was about $700/month and had a $1,500/year deductible. Though that was more expensive since I was on a group plan (and I'm cheap to insure).

nathanbarry11• 13 years ago

I'm a little late to this thread, but if anyone has questions (especially ones unrelated to taxes) I'm happy to answer!

jbigelow76• 13 years ago

What kind of content are you providing to the subscribers of the $100/mo. forum? And are you using actual forum software or some other CMS to manage the community?

nathanbarry11• 13 years ago

I'm writing a new course that is a follow-up to Authority. That is being dripped out one chapter per month. I also have case studies of other profitable audiences (my friends I admire).

Finally (and currently the biggest part) I have a forum of 20 like-minded people all helping each other out each day. I'm pretty active as well. Just answering questions ranging from landing page feedback, pricing advice, to which audience you should choose.

bdunn• 13 years ago

Chiming in here. Nathan and I both run membership sites that use the same underlying tech stack: a Discourse app that authenticates off a Stripe-aware Rails app that handles memberships and grouping users into cohorts.

Unfortunately, just about every forum that could be plugged into one of those "Membership site made easy" Wordpress plugins seemingly got lost in the 90s.

joelhooks• 13 years ago

I'm a member, and I didn't even know there was going to be content, outside of the conversation when I signed up. The value I get out of it is a place I can have candid conversations about the business I am building and get actionable feedback from Nathan (and the other smart peeps). Actionable stuff that will definitely increase revenue more than the cost of admission.

It's tough to do this stuff in a vacuum. I've got a hipchat room I hang out in regularly that has the same vibe, and there is value in hanging out with smart & motivated people working towards similar goals.

dminor• 13 years ago

Don't worry about not being good at soccer - I've been playing my whole life and I'm still not very good ;)

Great exercise though.

nathanbarry11• 13 years ago

Ha, thanks. :) I'll keep trying!

pmcpinto• 13 years ago

Great post Nathan and congratulations about the baby!

Which kind of soccer do you play? With 11,7 or 5 players?

nathanbarry11• 13 years ago

Indoor soccer with 6 players (including the keeper) per team. It's a small field.

GrinningFool• 13 years ago

OT: Tried to sign up for his newsletter. On firefox, a whole lot of Nothing Happened - no error, no nothing. Even disabled my anti-tracker plugin of the day (do not track me) to make sure it wasn't interfering.

On Chrome it worked, but didn't really give me visual indicator that it did - if I didn't have my phone nearby, I wouldn't have known that I got a confirmation email.

Not such a good first impression of software that's supposed to specialize in email conversion :(

nrs26• 13 years ago

I had the same problem with Chrome. A confirmation screen would be cool. The newsletter and sample chapter are both great though, definitely worth checking out.

ufukbay• 13 years ago

It sadly didn't work at all for me. Getting the following error on Chrome (Version 31.0.1650.63 m): XMLHttpRequest cannot load https://app.convertkit.com/landing_pages/4811371/subscribeFr.... No 'Access-Control-Allow-Origin' header is present on the requested resource. Origin 'http://nathanbarry.com' is therefore not allowed access.

mathattack2• 13 years ago

Great story. Thanks for sharing.

While others are focusing on the $s, 2 non-cash things jumped out at me.

And then… taxes. Which are brutal. I suspect it's the administrative overhead, rather than the taxes themselves. This can take away a lot of energy and focus.

Now that he is getting a bit older (2 years old) it’s been harder to take long flights with him. Kids don't travel well when they're old enough to walk, and too young for iPads. this will get better in a year.

nathanbarry11• 13 years ago

Ha, yep. I think this is a phase he will grow out of. I expect travel to resume in a few years.

mathattack2• 13 years ago

Don't worry. Kids get more awesome every year.

Two years after quitting my job: 2013 in review

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