Are you wanting to use your skills to start your own freelancing business? Being a freelancer will often give you the freedom to work where you want, when you want, and who you work for. However, there are some financial considerations you should keep at the top of your mind before starting your freelancing business.
1. Learn About Taxes
When you are a freelancer, you are subject to the self-employment tax. When you work for an organization, they pay half of this tax for their employees, and the other half comes out of the salary the organization could have paid you. Once you work for yourself, you are expected to cover the tax by yourself, which is 15% of your income.1 In addition to having to pay more taxes, you will also have to pay them quarterly,2 not annually. Clearly, doing taxes when you are a freelancer is very different than working for an organization. This is why you must read up on taxes when becoming a freelancer.
2. Take Advantage of Tax Write-Offs
Being a freelancer comes with the great benefit of being able to take advantage of write-offs. Anything you purchase that you use for work can be written off in taxes, resulting in a deduction in what you owe the IRS each year. Anything from computer equipment, taking clients out to dinner to talk about business dealings, to office decor can be written off in taxes. In order to successfully write-off your business-related purchases, you must keep every receipt from your purchases. This is in case you get audited by the IRS, so you can prove the purchases were legitimate and business-related.
3. Save, Save, Save
When you are a freelancer, cash flow is not as regular as with a standard hourly job. In fact, you will rarely have a month where you earn the same amount you did the month prior. It is very likely that you will experience slow months, and very successful months. This is why it is very important to save as much money as possible every time you earn a paycheck. You want to make sure you have prepared to cover your bills and live comfortably when you experience a slow month.
4. Consider Getting Health Insurance
Most freelancers are not provided health insurance with their jobs. This leaves them to get added to their spouse’s health insurance, have no health insurance at all, or get individual health insurance. If you are not married or your spouse does not have health insurance, it is highly recommended that you invest in health insurance. Emergencies happen and medical bills are expensive, so you will be thankful for your insurance in the event of an unfortunate medical emergency.
5. Consider Hiring a Financial Professional
When you are first starting your freelancing business, it can be difficult to manage your wealth. Knowing where you should spend and save will make a big difference with your freelancing business. This is why it may be in your best interest to work with a financial professional. When you work with a professional, such as one of Dayton and Sydney’s, you will be informed on strategies for how to manage your wealth as a freelancer.
1 “Self-Employment Tax (Social Security and Medicare Taxes)” Internal Revenue Service, Sep 4, 2019
2 “Freelancers, Here’s How To Do Your Taxes” Laura Shin Forbes, Jul 18, 2014
This article is for informational purposes only. Please be advised that this article is not intended as legal or tax advice.
