The skinny about freelance money: How to get comfortable with income, taxes and expenses
Money. Taxes. Finances. Are you cringing yet? Well, it doesn't have to be that complicated. Here's a guide for first-time freelancers.
This article is part 9 (of 10) of Lightpost, a new USA TODAY Network series sourced by experts and focused on helping you achieve your goals. You can read this article as a standalone, or check out more of our career-focused checklists and keep developing your badass skills.
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✔️ Understand you’re in for a different type of payment style
“It can vary by industry, but the standard is that you get paid within 30 days of your invoice. So you need to track this and on day 30, get on the phone and ask. In nearly all cases, the client will be apologetic and will have forgotten or thought they paid it and will get something right out to you. In all cases, explicitly ask, "When will the check be going out?" And follow up. The people who will flat out lie to you are few and far between. That said, they will prioritize if cash is tight and you need to be in the front of the line asking.” - Michael Katz, marketing expert
When you’re a freelancer, you won’t be getting that steady paycheck every two weeks. On a calendar, write out when your recurring bills are due. As you take on clients and make financial decisions, keep your financial obligations top of mind.
✔️ Document your finances
“It’s important for practical reasons, such as being able to track how your freelance business is doing, financially speaking, as well as having the information you need when you’re ready to file your annual tax return and pay your quarterly estimated taxes. Plus, self-employed individuals are required by the IRS to keep their financial records for at least three years, although I recommend keeping them for up to six years to be on the safe side.” - Jonathan Medows, CPA for Freelancers
Download this worksheet to track and manage your finances.
✔️ Get the basic skinny on taxes
“Even before filing an annual tax return, freelancers need to make sure they pay estimated taxes by the quarterly deadlines set by the IRS because when you’re self-employed no one is withholding taxes for you. Estimated tax payments may include federal and state income tax, sales and use tax and any local or other business taxes so freelancers should research which taxes they are subject to. Failing to pay estimated taxes throughout the year can create serious cash flow issues if a freelancer is faced with a huge tax bill at the end of the year. In addition, freelancers should make sure they have all of their financial records and receipts well documented and be aware of which tax deductions they are legally entitled to.” - Jonathan Medows
“IRS.gov has good resources and all the forms you need for filing your taxes, plus you can get the latest information on any changes which may affect your filings on the site. The Freelancers Union blog has a section on money and taxes specifically focused on issues affecting freelancers which is a good place to start. On my site, CPAforFreelancers.com, we have a resource section including a tax guide specific to freelancers as well as all of the current tax deadlines. Our blog and email newsletter are also great sources for practical tax tips and timely topics relevant to freelance business owners.” - Jonathan Medows
✔️ Consult an accountant, or make sure you get it
“There are three key things that freelancers can do to be proactive and avoid trouble at tax time: 1) Keep meticulous financial records; 2) Pay estimated taxes as mentioned above; and 3) Seek help from a tax professional if they have questions about their individual situation.” - Jonathan Medows
Unless you’re a freelance accountant, you’re likely unfamiliar with how your taxes will change now that you are making an income independent from one employer. Many freelancers we spoke to suggested finding an accountant (a CPA or EA). The best way? Ask around to you freelance network. Double check their BBB rating and make sure they are registered at the IRS Office of Enrollment.
“I wish I'd taken a basic accounting course when I began my freelance career as a teaching artist/performing artist, especially one that included tax tips for freelancers.”
- MiMi Zannino, freelance performing artist and teaching artist
“I highly recommend an accountant and working closely with him or her when payment starts coming in.”
- Dan Fost, freelance writer
This article is part 9 (of 10) of Lightpost, a new USA TODAY Network series sourced by experts and focused on helping you achieve your goals. You can read this article as a standalone, or check out more of our career-focused checklists and keep developing your badass skills.
GO TO MAIN CHECKLIST | GO TO PREVIOUS STEP | GO TO NEXT STEP