Thursday, August 31, 2023 – I recently met with a client who is a self-employed contractor, receiving income reported on Form 1099. Like many in his situation, he views himself as more of an employee than a business owner. This mindset leads him, and others like him, to commit a critical error: undercharging for their services.
Many 1099 workers forget to account for taxes when setting their prices, setting themselves up for financial pitfalls down the road. They are not just responsible for regular income tax but also a 15.3% self-employment tax. Plus, they bear business expenses that W-2 employees usually don’t have to worry about.
This issue isn’t exclusive to 1099 workers; traditional business owners are also guilty of the same mistake. The misconception that low pricing will attract more customers is a dangerous gamble. As the saying goes, “We lose money on every sale, but make it up in volume”—a flawed business strategy, to say the least.
Marketing strategist Dan Kennedy wisely pointed out, “There’s no strategic advantage to being the second-lowest priced leader in your market.” Competing on price alone is a surefire way to race your business into the ground, hitting that dreaded $0 mark before you know it.
Raising your prices doesn’t just improve your bottom line; it enables you to offer superior service, leading to higher customer satisfaction. Satisfied customers tend to stick around, become repeat buyers, and provide invaluable referrals. These are the cornerstones of a sustainable and profitable business model.
Steven A. Leahy is a tax attorney in Illinois. He was the host of the long-running popular Radio Show “The IRS Radio Hour” heard every Sunday evening on AM 560 The Answer. Attorney Leahy is also the author of the book “Deal With Your IRS Problems Today!” You can get a FREE copy of this important book at FreeIRSBook.com. Or Call 24/7 (312)664-6649