If you’ve recently landed your first freelance gig, you’re probably excited about the opportunity to work on an engaging project while making your own daily schedule. However, there’s a lot of preparation that you’ll need to account for, especially if you’ve never worked independently in a contractor or freelance position. Learning the ropes before your first project will help you transition smoothly into a successful and rewarding career while avoiding any surprises during tax season.
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1. Budget Your Time.
One of the biggest advantages of freelancing is that you are your own boss. You’ll typically get to make your own schedule, but you’re still responsible for working within the timetable that you agreed to when you were given your project. It can be easy to feel like your schedule is infinitely flexible, but that type of mindset is a dangerous trap for new freelancers. Instead, make a schedule and stick to it.
- Decide how much time it will realistically take you to complete each project you’re working on.
- Factor in a little extra time (perhaps a day or two, depending on your schedule) in case of any unexpected setbacks or delays in your project.
- Build your daily schedule around those projects. For example, if you have 10 days to complete an assignment and you estimate that it will take you about 40 hours total, you could work four hours each day for 10 days, or you could plan on putting in eight-hour shifts for five days. That way, if you need a part/tool/resource that you don’t have, you won’t be scrambling the day before your project is due.
- If you’re balancing multiple projects (which many freelance workers do), you’ll need to budget your time appropriately. For example, you might try to prioritize bigger projects that pay more, then fill in the “gaps” in your schedule with smaller projects. They may pay less, but they can still boost your portfolio and build connections for future work assignments.
2. Always Have a Contract
You don’t have to search for long on internet forums or within your friend group to hear freelance horror stories. It seems like everyone has been burned or knows someone who’s been burned by a client during a freelance project. Remember that this is your business and that you need to protect your assets. Unlike a standard full-time job, you won’t have a boss or CEO to back you up. Having a contract can help limit or prevent your losses and force your clients to pay you according to the terms you’ve outlined. Remember that contract terms and freelancer protections may vary from state to state or from city to city, so do some research and implement some basic precautions before entering into an agreement with a client. If you’re not sure where to begin, start with a freelance contract template and make alterations as needed.
- Specify the scope of the project (for example, a completed article or photo series) and make sure your contract lays out your compensation for the project you’re about to take on.
- Determine how you would like to be compensated. Some freelancers opt to bill for each draft they submit, many others simply charge a flat project fee, and still others charge an hourly rate. Know how you would like to bill and have the client you’re working with approve those terms.
- Work with the individual or company to agree upon a project deadline and payment date. Make sure those dates are specified in the contract. This helps the client feel better about the agreement, and it also makes your finances more predictable by ensuring that you’ll be compensated within a given timeframe.
- You may want to include a late payment clause to protect your assets in case the client does not pay you by the agreed upon date. This may be a flat fee or a percentage of the total amount that hasn’t been paid each month.
- Think about whether or not to include a termination clause. If the client ends your contract before the project has been completed, a “termination of agreement” clause will ensure that you are paid for the work you’ve done up to that point, as well as for any expenses that you have not yet been reimbursed for.
- Decide whether you want to give the client full ownership of your work, copyrights to your work, or just licensing to use your work. Some clients may insist on full ownership, so talk to the client in advance about your respective expectations and try to work out an agreement that is mutually beneficial.
- Consider including some type of clause limiting your revision requirements. It’s reasonable for a client to ask for one or two practical revisions, but make sure you aren’t on the line for an endless round of revisions without getting paid for your work.
3. Keep Track of Expenses
This one may sound obvious, but many freelancers who are just starting out may not be used to keeping a careful eye on their expenses. This is important because unlike a typical office job, you’ll be responsible for buying your own supplies and managing your expenses. You are essentially running your own one-person business, so you’ll need to treat your expenses professionally and responsibly. The easiest way to do this is to keep your business expenses separate from your personal expenses.
- Consider getting a designated credit card for your business. This will make it much easier to keep track of your business expenses, which will be crucial for tax preparation (more on this later).
- Before you get an actual business credit card, though, consider your average and anticipated monthly expenses. Cards issued to small businesses tend to reward bigger purchases, so if your monthly overhead is generally low it might make more sense to opt for a personal credit card instead of a business account.
- Look for a card with a low monthly APR (annual percentage rate) to help keep your costs down. A high APR with a significant balance on your card can result in large fees if you don’t pay off the entire balance you’ve accrued that month.
- Factor in any annual fees that a card company charges. Not all credit cards come with an annual fee, but many do.
- Consider cards that offer appealing rewards and/or cash back options. These cards typically give you money back on your card, discounts on certain types of purchases, or perks like frequent flyer miles, depending on how much you spend and where you make your purchases.
- No matter what type of credit card you choose, make sure you only use that card for business expenses.
4. Plan for Tax Season
When you work as a full-time employee, your employer automatically deducts your taxes from each paycheck, meaning there’s less work on your end when April rolls around. However, you won’t receive a bimonthly paycheck as a freelancer, which means it falls on you to take care of your tax responsibilities. These can vary from state to state and even from one city to another. Know your tax obligations well before tax season to avoid any unexpected surprises.
- Freelancers are required to pay a self-employment tax to cover your Social Security and Medicare taxes (in addition to your regular income tax). When you’re a full-time employee at a corporate office, your employer pays half and you pay half. As a freelancer, you’ll be required to pay your share and your employer’s share. This can be over 15% of your annual income for some freelancers, though you can usually deduct the employer’s half when you file your taxes.
- File your taxes quarterly. The tax rate for freelancers is considerably higher than an average, full-time job, primarily because you are your own boss and you’re essentially running a small business.
- Learn about your local and state business costs (if applicable), as these may be tacked on to your other tax obligations.
- Consider working with a professional accountant/tax preparer. They can help make sure you’re paying what you need to and that you’re not paying anything you don’t have to. They’ll also help you get the most out of your deductions. Which leads us to the next step…
5. Deduct What You Can
The IRS understands that businesses accrue expenses. While it’s easy for freelancers to think of themselves as independent artists/workers, you are your own business (at least for tax purposes). As such, you’re entitled to deduct certain expenses from your tax obligations, but only those expenses that are deemed to be valid business-related charges. Check with a certified professional to see what you can and cannot deduct in your state.
- Save all of your receipts. Any equipment or supplies that you purchase, any meals spent on clients, and other business-related costs should be tallied carefully. You’ll want paper copies in case you need to justify expenses during an audit.
- Use a financial tracking service. Platforms like Mint and Pocket Guard can help you keep track of how much you’re spending and where you spend the most money. A service like QuickBooks or GoDaddy Bookkeeping can help you track your purchases, with many platforms allowing you to save digital copies of your receipts. This can simplify your tax preparation and keep your finances in order in case you lose any receipts.
Typically, as a freelancer, you should be able to file deductions on essential business expenses, including (but not necessarily limited to):
- home office space (usually $5 per square foot of space used exclusively for work, with a 300 square foot max)
- office supplies like paper, writing utensils, certain software purchases, printer ink/toner, and even larger equipment like computers and printers
- certain licensing expenses
- some health insurance premiums
- work-related lunch or coffee meetings with clients to discuss a project (typically 50% can be deducted)
- industry conferences, seminars, and relevant educational/professional development courses
airfare and taxi fare for meetings and work-related travel (note that this does not include daily commuting)
6. Save Money Whenever Possible
You’ve probably heard the old adage that you have to spend money to make money. But as a freelancer, you may be limited by some of the expenses that you haven’t had to account for in the past. You may also feel overwhelmed by the ups and downs of freelancing; you could have a full plate of opportunities one month only to spend the next month without any new projects. Fortunately, planning ahead can help lower your expenses and save money for those drought periods.
- Don’t miss out on items you can deduct! It’s worth reiterating that an accountant or tax preparer can help you take advantage of all the deductions you’re eligible for.
- Lower your overhead cost by ordering discount office supplies. Even though you may be able to claim these purchases as a deduction, you’ll still have to pay for them up front. Simple changes like switching to remanufactured or compatible (“generic”) printer cartridges can help you save hundreds of dollars each year!
- Set aside enough money in savings to help you get by during lulls in your work. You may want to have at least a couple months’ worth of rent and other expenses saved up. That way, you can still get by if you find yourself without a job the week your rent is due.
- Reevaluate the rate/fee that you charge clients every 6-12 months. Your finances may change, economic factors may fluctuate, and you don’t want to be stuck footing the bill if your work isn’t supporting you at your old rate or fee schedule.
Don’t let your fears deter you from working as a freelancer. With a little bit of preparation and hard work, you can reach your career goals while still working from the comfort of home!