Unless you work for a great company as a software engineer, you can make/keep significantly more money as your own company.
The past few years have punished W-2 wages even more when compared to non-W-2 earners or people who partial incomes from W-2.
PPP Loans, SEP-IRAs, QBI deduction, plus plenty of other random deductions as well that are no where near the sketchy deductions that certain people take such as hair/makeup.
Like many things, this doesn't apply only to software engineers but any job that you can easily contract out or do plenty of remote work.
The current US tax structure encourages entrepreneurship. At the same time it seems to make it slightly scary/challenging with tons of ridiculous paper work, especially if you move across state lines. Oh & paying taxes is a pain. If someone wanted a huge unicorn type business idea, making it super easy to handle all this garbage would be nice. Most places are either to expensive for a single or tiny business, or don't offer enough help. Huge opportunity with an expanding niche & no one is doing it really well.
Be careful with this advice since it does not apply generally or all the time for most people. Being self-employed can have a significant financial upside, but it also has significant costs and risks. I switched to 1099 work several years ago and in comparison to what I could be bringing home in total compensation with a big tech company, I make anywhere from 0.75 to 1.5 times as much. The situation is similar for friends who made the same switch - some years it's substantially better, some years it's worse, on average you trade different kinds of stress for a little bit more money.
It's important to keep in mind that running a business, even one where you're the only employee, is a pain in the ass in America (and especially in California). In addition to all the compensation things you don't get through an employer (health insurance, 401k matching, subsidized meals, paid vacation days, etc.) you also have added overhead in self employment tax, professional insurance, compliance/service fees, etc. And then you have the added headache of a small mountain of paperwork, both to get started and at tax time every year, in addition to having to keep your accounting straight and sometimes having to chase down payments. Also keep in mind that the line items you listed have caveats. QBI phases out at certain income levels and for certain professions (I get $0 from it), PPP is a one-time deal, IRAs are not equivalent to getting free matching money from an employer 401k, etc.
As others in here have mentioned, you also have to maintain your client pipeline and even then there's no guarantee things will work out. For example, last year when the pandemic started my primary client paid the early termination fee, cut my contract 4 months short, and left me to twiddle my thumbs while my W2 friends happily plugged away at their normal jobs with no income interruption. That's the kind of risk you take and over time it absolutely will impact your total earnings. In general, self-employment is most definitely not for everyone - I usually only recommend it for a limited subset of people.
Having now started / run 3 different small businesses in the US in 3 different states, I would say the paperwork and tax compliance is the second biggest headache of doing business here. Sales tax is especially annoying. But the #1 biggest headache is providing healthcare (not mandatory for small businesses, but you need it if you want to be able to hire anyone).
I would love to see significant reform to simplify taxation for small businesses, but more than that I would love for the US to have a simple, high quality universal healthcare program so that I didn't need to worry about healthcare provision as part of my company.
> Unless you work for a great company as a software engineer, you can make/keep significantly more money as your own company.
This comes at the expense of time and energy. Running a "company" will involve a lot of other things beyond software engineering. Like stocks, there's also no guarantee you will beat the market (the market being the best salary you can get).
The most time and energy efficient way to make money with little risk is still to take a standard software engineering job, don't take on unnecessary responsibilities, and just work remote to eliminate commute (you don't get paid for commute time but because you still have to do it you have to account for it as part of your work hours, which can vastly reduce your true hourly rate).
If you have one or two solid long term clients, the running a company is minimal once you're setup. You pay yourself a salary, do a few quarterly state tax items & a monthly payment to the IRS.
It's usually the initial setup that is the biggest pain & if you ever make any changes like wanting to move states or addresses. This is where I think a service would be really beneficial. At the same time, the amount of time/revenue lost to this is less than the amount gained by tax benefits. I mean every company made 5 months of salary plus benefits per employee from the PPP loan over the past 2 years. That alone was huge.
From personal experience, it sounds like "the best salary you can get" requires hunting for decent opportunities, studying for tons of ridiculous interview questions, networking with employees at the company to get a leg up & of course taking a ton of interviews. Plenty of time/energy goes into that as well. Of course you can counter argue that getting clients takes plenty of time energy. So it maybe comes down to each person's own unique situation and which opportunity is best for them. I've found that doing great work, gets your name out there & marketing is not required. Learning to say "no" to jobs tends to be required more than marketing.
Don't forget health insurance and errors & omissions insurance.
Finding clients takes about the same effort as preparing for job interviews except you have to constantly be looking for clients.
It's not easy finding and managing multiple long term clients, and even then you need about 3 or 4 to ensure one doesn't hold too much leverage over you.
In the end, it's a wash, if starting a company was two or three times better than a salaried job it might be worth it, but as it stands it's barely 1.2x better than a salaried job.
If you want more money it's best to just do a salaried full time job and then do some work occasionally on the side or develop other passive income streams.
> If you have one or two solid long term clients, the running a company is minimal once you're setup.
In many countries, big consultancies lobby governments to treat such business as disguised employment. Here in the UK from this year, you may likely be caught by these new rules and have to pay employer and employee tax on the entire revenue - which essentially means you pay more tax than an employee, you don't have any employment rights and you still have business running costs that you cannot claim any tax relief from.
Sure but, anecdotally, the only people I know who have "beat the market" are either healthcare professionals or small business owners. The successful entrepreneur has a much, much higher ceiling than almost every other occupation. Sure, a cushy software job will be reliable and probably be very lucrative but those do have an eventual cap that doesn't exist when self-employed.
The past few years have punished W-2 wages even more when compared to non-W-2 earners or people who partial incomes from W-2.
PPP Loans, SEP-IRAs, QBI deduction, plus plenty of other random deductions as well that are no where near the sketchy deductions that certain people take such as hair/makeup.
Like many things, this doesn't apply only to software engineers but any job that you can easily contract out or do plenty of remote work.
The current US tax structure encourages entrepreneurship. At the same time it seems to make it slightly scary/challenging with tons of ridiculous paper work, especially if you move across state lines. Oh & paying taxes is a pain. If someone wanted a huge unicorn type business idea, making it super easy to handle all this garbage would be nice. Most places are either to expensive for a single or tiny business, or don't offer enough help. Huge opportunity with an expanding niche & no one is doing it really well.