Maybe you work as a freelance writer, crafting compelling pieces of marketing content for your clients’ websites and social media accounts. Perhaps you’re a freelance musician, playing country music on your guitar at local venues in your area. Or maybe you work as a business consultant, assisting CEOs to improve their management strategies. Freelancers come in all shapes, sizes, and industries. Earning income as a freelancer can be a little scary and challenging at times. So here are 5 quick tips on managing your income as a freelancer:
1. Buckle up for a rollercoaster ride.
When laboring as a freelancer, it’s often tough to establish a consistent stream of income. You might work on a project for a few days, weeks, or months, and then you’ll have to look far and wide to find your next contract. This is why having a plan in place to help get you through the uncertain times is a must. Set aside a certain amount of any money you make to have as a backup, especially income you receive that is above-average from what you normally earn each week or month. Also, avoid spending any money you anticipate will be replenished when getting a new gig because there are no guarantees on this.
2. Be aware of your IRS tax deductions.
While freelance expenses can be big, the good news is that a good amount of these costs qualify as IRS tax deductions. You could write off home office expenses, use of your personal vehicle, airfare, hotel accommodations, services like online backup subscriptions, and equipment and tools. Keep in mind that these expenses must be ordinary and necessary for you to conduct your freelance work to be deductible.
3. Report all income and pay the appropriate taxes on it.
Just because you don’t work for an employer that withholds taxes from your paychecks like Social Security and Medicare taxes doesn’t mean you are exempt from paying Uncle Sam. Many freelancers assume that cash payments don’t have to be reported as income. This is a very bad and incorrect assumption. Any income you generate through work must be reported to the IRS, and you must make any tax payments you owe on it in a timely manner.
4. Keep tax payments and retirement in mind.
As a freelancer, you may be on the hook for paying your own taxes, such as making quarterly estimated tax payments throughout the year. Learn about the deadlines you must meet and how to estimate these payments based on income projections. As for retirement planning, money is often tight when working as a freelancer. But always account for your future by doing your best to set aside a little money for savings purposes. This could be as little as $100 per month. You certainly don’t want to be a pauper in your golden years.
5. Insure yourself and your business.
No matter if you’re a simple sole proprietor or operate a formal small business as a corporation or LLC, it’s important to protect yourself and any business assets you own with insurance. Get disability insurance in case you are unable to work. Consider a health insurance plan, liability insurance, and other types of protection that can help you sleep easier at night.
1-800Accountant is here to assist freelancers, small business owners, and anyone with their tax and accounting needs. To learn more, call 1-800-222-6868 or click over to www.1-800Accountant.
Image credit: The image included in this blog post is used with permission via the Flickr Creative Commons license.