This is because 50% of your working time goes towards marketing, self-promotion, and other things clients don't pay you for. And 50% of your revenue goes towards taxes, office space, and buying products and services to support your business.
I'm hugely in favor of charging more as a freelancer or consultant, but this isn't accurate. In general, software devs have very low overhead, don't spend half their productive time on marketing and promotion (perhaps they should), and the additional taxes you pay when self-employed in the US are either small (other half of SE tax, max ~8% but usually lower for high-income) or negative (you can write off a lot more).
The reason to charge more is because you're delivering more value, not because you need more money. Clients don't give a shit what you need to make. Charge them based on the value you produce, whether that's 2x or 10x what they'd pay an employee.
Well, there's more than just self-employment tax that you are paying as a freelancer. There's also state and local taxes to consider. Depending on where you reside, your county may collect taxes on gross receipts or collect property taxes on office furniture/equipment. Furthermore, you will really want to have some form of business insurance (like errors and omissions) on hand as well as your own health insurance and retirement fund. All of this will come out of your pocket and needs to be considered when determining an hourly rate to charge.
Not sure why you are being downvoted because you are right. In addition to income tax, you have to pay the full payroll tax rather than half if you are a full-time employee. Then there is business insurance, workers comp, healthcare, and any other benefits you take for granted as a full-time employee.
I already pointed out that you pay the other half of SE tax, but that’s at most 7.65%, and since SS is capped, for many high-income self-employed workers it’ll be less.
And yes, you pay income tax, but no more than you pay as an employee, so it’s not relevant here.
In fact, you now almost certainly have a huge advantage if you’re self-employed: in addition to being able to write off more and save more for retirement pre-tax ($55k), you now get a 20% deduction of your net profit if your taxable income is below $157k single / $315k married, which most self-employed folks will be.
Healthcare is still by far the biggest cost difference most people will face but even if you add all these things up, they don’t represent anything even remotely close to 50%.
50% of your revenue goes towards taxes, office space, and buying products and services to support your business.
Healthcare is still by far the biggest cost difference most people will face but even if you add all these things up, they don’t represent anything even remotely close to 50%.
I beg to differ. For a family of four in Texas, we paid nearly $15,000 per year for insurance and that's deemed a "good policy" (not great) meaning that it has a good PPO, most docs are in network, and most medications are $10-$50. Insurance premiums don't scale with income and that's not accounted for if I read your arguments correctly. If we compare two families of four led by "a freelancer" (as we're talking about here) in Dallas and one freelancer makes $100k but another makes $200k, both have to pay the same $15,000 per year in health insurance premiums. For the $100k freelancer, his health insurance takes up 15% of his gross revenue - that's absolutely going to get him close to or above @ollerac's 50% figure. Maybe not so for the $200k freelancer who only has health insurance account for 7.5% of gross revenue.
The city of New Haven charged property tax on everything worth more than (IIRC) $5k when we lived there. It’s a large part of why they have few businesses despite a major university since there’s a strong incentive to move to a neighboring city.
I'm hugely in favor of charging more as a freelancer or consultant, but this isn't accurate. In general, software devs have very low overhead, don't spend half their productive time on marketing and promotion (perhaps they should), and the additional taxes you pay when self-employed in the US are either small (other half of SE tax, max ~8% but usually lower for high-income) or negative (you can write off a lot more).
The reason to charge more is because you're delivering more value, not because you need more money. Clients don't give a shit what you need to make. Charge them based on the value you produce, whether that's 2x or 10x what they'd pay an employee.