At times, the freelancing lifestyle can feel a bit like the Wild West. You have to use unconventional methods to remain employed, you don’t generate income unless you put in the work, and even then, you won’t get paid unless you take the unpaid time to bill your clients. [Read more…]
Freelancing is becoming a major industry as more and more people work from home. In recent times, due to the pandemic, there’s been a spike in workers who’ve had to become their own boss and market their business services as independent contractors.
However, we saw a spike in freelancers in the years before coronavirus hit due, in part, to the attractive, alternative lifestyle it offers. You have total control over your schedule, with flexible hours that you can work from home, set on your terms. To many, the opportunity to be your own boss and set your own price rate is far more enticing than a standard 9-5 job.
But, with more control comes more responsibility. As a freelancer, you’re tasked with handing your own employment taxes since you’ll no longer have an employer to file on your behalf. If you fail to keep up with your taxes, you could find yourself owing a large sum of money to the government without sufficient savings to settle your debt. And unfortunately, this happens all too often for individuals that are just getting started with their own freelancing or side business the first time around.
Whether you’re just launching your freelance career or trying to make up for lost time, here’s the run down on how to pay taxes so your business can stay afloat.
Understand Tax Basics
As a freelancer, you may have many skills—copywriting, video editing, web development, and so on—but you may not know about how taxation works. The most important thing to note, is that if you work as an independent contractor in the United States and earn at least $400 or more in a given year, you are required to file taxes to the Internal Revenue Service.
The tax bracket you fall into will depend on how much you make. If you made money last year freelancing, you’ll need to submit estimated quarterly tax payments based on your previous earnings. And don’t take this responsibility lightly, as the estimated tax penalty can cost you hundreds of dollars if you fail to do so.
Keep Track of Tax Expense on Daily Basis
Here’s another crucial tip: save every invoice, but more importantly, every business-related receipt. Need a new laptop? Had to purchase a specific software program? Write it all down and add it all up. When it comes to filing your income tax return, you’ll be able to deduct the total amount from your earnings, which may in turn drop you into a lower tax bracket.
Keep in mind, however, only qualified business expenses count, so you might have a hard time justifying how that Xbox relates to work. And, should the IRS ever issue an audit out of suspicion, you’ll need proof to back up each claim—not only for this year, but up to seven years ago. If you have a hard time keeping track of paperwork, consider investing in a document scanner that can save all your information over the cloud.
Research Tax Deductions and Credits
Business expenses (including travel costs, vehicle use, and internet bills) are just one example of a deduction that you can claim to lower your taxable income. There are many more ways you may be able to find tax relief, including payments health insurance and student loan interest.
Tax credits are different in that they reduce your final tax bill dollar for dollar. You might be able to qualify for these too, so do your research to save all the money you can.
Don’t Hide Your Income
You might be tempted to conceal your earnings from the IRS, but it’s against your interest to do so. The people who hire you might record your payments for their own tax purposes by filing Form 1099. That means the government will know what you made, and if you report a number that doesn’t add up with their calculations, you could face serious consequences from tax evasion or fraud.
In the end, even if you personally aren’t reporting all of your income and costs, the business or brand on the oppposite side of the transacation probably is. So in short, don’t cut corners and be sure to pay all of your owed taxes and don’t try to cheat the system.
Hire a Tax Accountant
If all of this sounds like a lot, you’re not alone. It can be quite a headache to stay on top of your freelance taxes, which is why many people turn to professional help. There are many online platforms you can use to stay organized, but you can also hire an accountant to file on your behalf.
Another thing to consider is that you don’t need to hire a local accountant. Thanks to the power of the internet, you can hire an accounting company or financial advisor anywhere in the world, while still running your freelancing business from home.
The Business of Working for Yourself as a Freelancer and Managing Finances
As with most entrepreneurs and individuals working with side jobs to make some extra money, the process of managing your finances may soon become a big part of your job as well. However, it sure beats having to work for someone else!
The good news is, there are plenty of tools and resources out there to help you along the way. Whether it’s invoicing software, making payments and paying yourself online, or even paying your taxes early or on a quarterly basis, it’s now all easier and more accessible than ever before.
Keep these points in mind to stay out of hot water with the IRS and your odds of running a successful freelance career will be much greater!
The world of freelancing can be a fun, frustrating, and extremely lucrative one when approached correctly. However, with so many people jumping into this space with heavy expectations, without the right tools and work ethic in place, your valuable earnings might soon disappear right before your eyes. This can happen for a number of reasons, and many of which we will be covering in this article today — along with some importance tips on how to better manage your freelancer finances in the process.
First off, according to Statista, there are an estimated 62.2 million freelancers in 2019, across the United States. This number will just continue to rise, as third word country keep getting access to better internet and more freelance marketplaces open their doors to foreign markets.
This figure is set to rise in the upcoming years, and by 2027, there will be an estimated 85.6 million people who are freelancing. Being your own boss, setting your own hours, and doing your own thing are just some reasons why people are becoming freelancers.
Working from home on something you are passionate about is great, but freelancers also have to keep track of their finances. This is especially true if you are writing for a wide range of clients, while also working on various freelancer marketplaces.
If you are thinking about becoming a freelancer, here is everything you need to know about how to organize finances.
Best Ways to Manage Finances
If you have previously worked for other company’s or you have never worked before then thinking about how to manage your own finances can be difficult.
There are a number of financial costs involved with setting up your own freelance business and you also need to think about filing and paying your own tax.
We have the low-down on the tips and tricks on how to manage finances better if you are a freelancer.
1. Track Your Income
Make sure you know how much money you have earned each month. Keep a track of your income as this will help you:
- a) know how much wage you have that month
- b) know how much you earn each year (which makes filing your tax much easier).
A good way to keep track of your income is by creating a document that includes all your monthly going ins and going outs.
There are certain apps and software that allow you to put in your income information and keep track of your money, such as ThePayStubs.com.
2. Set Aside Money
There are two reasons why you need to set money aside because being a freelancer means that you don’t have a set income each month and that you also need to pay your own taxes.
One month you might earn a lot of money and work with many clients, whereas another month might be very quiet and you might not earn that much money. This is why it is very important to set money aside. Give yourself a strict freelancer budget and make sure you save some money each month.
You should also set aside enough money to pay for your tax. Often this is about 30% of your income, but it can always be good to set aside more, just so you are covered.
3. Accept As Many Payments As Possible
As a freelancer, it’s also important to make sure you aren’t limiting your incoming revenue and finances by only accepting payment certain forms of payment.
Depending on where you are located, you might be limited in this area already, but new payment options are opening up all the time. As pointed out by WPBeginner, there are plenty of payment options out there for accepting money online. This can prove quite useful if you have your own website or brand, and can accept payments directly.
Such payment solutions include:
- Google Wallet
However, when doing business with anyone in the United States, Paypal is going to be one of the most requested options for payments.
3. Get Insurance
If you are thinking of becoming a freelancer and are wondering how to organize your finances if something bad happens then you need to get insurance. Ensure that you have health insurance that can cover you if you have any health problems and need to take some time off.
If you don’t have insurance as a freelancer than you might be at risk of getting into a lot of debt. This is something many top freelancers have a problem with and also discuss through their websites and blogs to help other freelancers. Carol of MakingALivingWriting.com, recommends the following insurance options:
- Spouse’s policy
- Affordable Care Act
- Freelancer’s Union
- Private Insurance
There are a whole number of businesses that offer insurance for freelancers, so have a look around and find one that covers your business and needs.
How to Organize Finances and Make More Money
Being a freelancer is great because it gives you more freedom than working for somebody else, however, you need to make sure that you are smart when it comes to the money side of things. At the same time, don’t forget — millions of other freelancers are fighting to get work as well, so if you want to make money as a freelancer, you need to treat it like a serious business.
Follow our four simple, yet effective, tips on how to organize finances and you will be able to have a successful freelancing career.
Freelancing in any field carries risks. How can you possibly feel safe when you’re not getting a steady, guaranteed paycheck? However, experienced freelancers know the truth. With a traditional job, you could be fired or laid off at any time—meaning you have less control over your income than you do when you’re self-employed. [Read more…]
As a freelancer, you probably spend a disproportionate amount of time thinking about your income. You might wonder how long your current client base will stick around, crave a higher overall revenue stream, or worry that you aren’t making enough money to retire.
One of the best ways to address these concerns is to diversify your income stream and supplement your income with other sources. How can you accomplish it? [Read more…]
As freelance writers, we’ve all been there.
Maybe it’s not a lot of debt – maybe just a couple of credit card bills that are racking up some interest because your income forecasting fell short. It’s just a bad year in a cycle of good and bad years. Or maybe it’s more than that. Maybe you’ve recently faced some emergency expenses and you’re buried under a pile of loans and bills, some of which are even going to collections. [Read more…]
There are plenty of perks that come with being your own boss: flexible hours, picking your projects and more control over work-life balance. But one thing you’ll miss out on is an employer retirement benefit.
When you freelance, building your own retirement nest egg, including choosing the right plan, falls entirely on your shoulders. You can set up a retirement account at an online brokerage or robo-advisor. But first, you should know the best options for you. [Read more…]
Whether you are a part-time freelance writer trying to make some extra money in your spare time or you want to make a living from your freelance writing projects, there are often times when you need funding to make these projects a reality.
There are a variety of funding options for freelance writers, depending on the type of project they are working on. Some options are better for those who need capital to start and maintain a business, while others work best for creative projects that require a one-time funding source. Below are four funding options available to freelance writers, along with some information on when and how to pursue them. [Read more…]
Most everyone does a Christmas countdown, but I don’t know a single person who does one for Tax Day. We might as well do it since there is no escaping paying taxes – unless you want a visit from the IRS.
So, 32 days till that wondrous day: April 18. [Read more…]
Most freelance writers cannot imagine themselves going back to a corporate setting where job stability – and salary – is practically guaranteed. As we found out in our survey, The State of Freelance Writers in 2015 , the main issue that freelance writers face is uncertainty in income.
For sure, all of us have faced this problem at least once. There are those periods when we are flush, but there are times when we just don’t know how we’re going to manage.
During these times, it’s easy to fall prey to desperation and depression, but there are ways to handle things. When you’re in dire financial straits, you can either “give up” or find solutions.
Let’s be positive and choose the latter, shall we? [Read more…]