In this video, Louis Barajas warns Latino entrepreneurs about a common tax pitfall when transitioning from employee to self‑employed. He explains that once you start a business, the government (and possibly the state) becomes a silent partner, meaning you must cover the full 15.3% self‑employment tax that was previously split between employee and employer, as well as federal and state income taxes. He stresses that the full amount of client payments is not disposable income; a portion belongs to tax obligations. Barajas advises consulting a tax professional early, estimating and setting aside money for quarterly tax payments, and building tax costs into business expenses to avoid back taxes, penalties, and installment agreements. The video ends with a call to follow his "Finances con Corazón" content for more financial guidance.
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Now, if you're thinking about leaving your job and starting your own business, especially my Latino entrepreneurs, there's something I need you to understand. The minute you become self-employed, you have a new business partner. His name is Uncle Sam, tu tío. And depending on where you live, you may have another partner, your state. Now, here's one of the biggest mistakes I've seen entrepreneurs make over the years. When you're an employee, taxes are automatically taken out of your paycheck. You get paid $5,000, but $5,000 doesn't hit your bank account. Tax has already been taken. Withheld. Now, then you become self-employed. A client pays you $5,000 and suddenly the entire $5,000 shows up in your bank account and you think, I made $5,000. Well, not exactly. Part of that money belonged to the government. And now there's something else that new entrepreneurs sometimes don't realize. When you're an employee, you pay part of your Social Security and Medicare taxes through your paycheck, but your employer paid a portion as well. Guess what? Now, when you're self-employed, you are the employee and the employer. Now, generally what that means is that you're responsible for the full 15.3% of the self-employment tax or the Social Security taxes applicable on your earnings, in addition to the federal and state income taxes you may owe. So I've been doing this for a long time, guys, and I can tell you how many entrepreneurs I've helped after they get into trouble with the IRS. Back taxes, penalties, installment agreements, and believe me, that's not where you want to go. So when you start making money in your business, don't look at everything in your bank account as money available to spend. Some of that money isn't yours. Sit down with a good tax professional early. Figure out approximately how much you should be setting aside. Understand whether you need to make quarterly estimated tax payments. And build those taxes into the cost of running your business, because becoming an entrepreneur can be one of the greatest opportunities to build wealth, but revenue isn't income, and the money in your bank account isn't necessarily the money in your pocket. Build the business, make the money. Just don't forget about your silent business partner. Please follow me for more content on Finances con Corazón.
