Self-Employed and Living in Texas: How Moving Impacted One Attorney’s Disposable Income

If you’re self-employed, you’re probably familiar with the sinking feeling that comes with filing federal taxes. Is it really possible to owe that much? Where did all your income go? Taxes are tough on everyone, especially for people who work for themselves in a state that charges income tax.

California can seem like a great state for self-employment because of its networking opportunities, but it charges an unreasonably high income tax. Texas, alternatively, does not charge state income tax, and it’s also one of the best states for self-employment.

Making Ends Meet in California

Diana Miller, a self-employed attorney, has experienced both sides of the income-tax debate. She currently practices in Texas, but she used to work in California. In both states, she’s run a member-managed professional limited liability company (LLC). She’s been a contract attorney off and on for the last 15 years and has noticed a considerable difference between working in Texas and working in California.

“When I lived in California, I always felt that, with state and federal combined, about one-third of whatever I made would go to taxes,” Diana says. “That was a lot. And everything’s expensive in California anyway.”

The taxes, combined with California’s high cost of living, left Diana with expenses so high that until she could bring in a six-figure salary, she was barely taking anything home. “I always paid the rent and paid for my car, but I felt like I was making next to nothing.”

Disposable Income in Texas

After Diana moved to Texas, she noticed a significant difference. The lack of a state income tax, combined with a lower cost of living, has left her with a lot of extra money.

“Coming to Texas, I’ve definitely had a lot more breathing room,” she says. “I have more disposable income in Texas, even with two dependents. Because of the tax savings, I still have money to handle personal matters that I wouldn’t have had just caring for myself in California.”

Diana also emphasizes the lower cost of living in Texas. “It’s more affordable here in Texas,” she says. “In California, with the cost of living and the income tax, it seemed like 95 percent of couples had to have both people working because they just couldn’t afford it otherwise. And I’m not talking part time; both people had to work full-time jobs.”

Staying on Track With Payroll

If you’re thinking of becoming self-employed, Diana advises investing in a good payroll service for your business. She has a payroll system set up through her LLC, from which she pays herself. An ideal payroll service will calculate your taxes from checks issued to you and your employees and ship the payments on time.

Good customer service and responsiveness are vital when choosing a payroll service. “You want the service as basic as possible because your time’s limited and you have a limited income,” Diana says. “But remember, responsiveness is key. If you’re just one person running a business, you don’t have time to sit on the phone and wait on customer service.”

All in all, Diana is happy with her decision to live in Texas.

“Taxes always hurt,” she says. “But I feel like I have more free income to work with in Texas.”

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