Even those in the most creative fields, it’s a stone cold fact: If you want to make money freelancing you need to be on top of your money. Thankfully, there’s no need to buy ribbon for your accountant calculator and fish out that green visor (unless it’s to make a fashion statement) because with careful planning and tools like QuickBooks Self-Employed that make staying organized easy, you can make a great living.
Eyes Wide Open
Before you get started working for yourself, it’s incredibly helpful to get a handle on your personal finances, and know what you need to make in order to, you know, live. Freelancers are often surprised that they don’t take home as much as they expected when they first start out. Remember, your total annual tax burden will include self-employed (SE) tax, federal tax, and state tax. Of course, how much of your income you put aside (as well as how much you’re ultimately taxed) looks different for everyone. But generally speaking, putting aside between 15 to 30 percent will be enough to cover yourself. Check out this resource to estimate your own tax needs.
Also, the self-employed are responsible for all of their healthcare expenses, as well as any retirement savings, read: No more corporate matching, boo! You’ll need to have money on-hand and enough cash coming in to seed expenses, save for taxes, contribute to a retirement account and still meet your personal financial goals.
Head of Communications at QuickBooks Self-Employed, Kimmie Greene, knows all too well about the importance of starting out your freelance path on the right foot. “By no means should the amount you need to live today, limit what you should make in a given year,” she says, “but knowing this baseline is helpful in figuring out what you need to charge, so you aren’t surprised down the line.”
Accounts, accounting, accountability
In the immortal words of that punk band you used to like, “You gotta keep ‘em separated.’’ And by that, we mean your accounts.
- Open a business bank account (do NOT use your personal account. Why risk it?)
- Open a IRA account to save for retirement.
- Keep tabs on your finances right from your smartphone. Sort business from personal with a swipe and track your progress on the move, by connecting your checking account to QuickBooks Self-Employed. Added bonus: Everything being in one place will make tax time less of a crunch.
Join the track team
Why walk 500 miles when you can drive and get a tax deduction? Writing of your tax expenses—and asking yourself, “Can I expense this?”—will be a big part of your self-employed life, my friend. As long as an expense has to do with your business, it’s fair game come tax time. That means stuff for your home office, the bill for your coworking space, work-related travel, and much more, could be totally redeemable. That means keeping the receipts, figuratively and very literally.
Use the automatic mileage tracking feature on the QuickBooks Self-Employed app to automatically track your miles without draining your battery. By using Mileage Tracking you can find an average of $7,393 in potential mileage deductions per year.
Snap photos of all your business-related receipts with an app like QuickBooks Self-Employed’s receipt capture (it’s as easy as taking a selfie!) for on-the-go tracking and a much less painful tax prep experience down the road.
Tax on, tax off
Let’s be real, doing your taxes when you’re self-employed is a battle, but by tracking, saving, plus some good advice, it doesn’t have to be a war. A general good rule of thumb offered by most experts is to start by saving 20 percent—just figure that money is someone else’s and that someone else is Uncle Sam and the state you’re in.”
- Save for taxes every paycheckSave a minimum of 15 to 30 percent of each paycheck to cover federal taxes, state taxes and social security/self-employment tax. Though, depending on your income level, that number may be higher. Check out your estimated percentage here.Be sure to save for your state taxes as well. You can see your state’s rate here.
- Pay upGenerally, in addition to filing taxes by April 15, freelancers also pay quarterly taxes based on quarterly estimates. QuickBooks Self-Employed will create those estimates for you making file taxes a breeze.
- Deduct awayAs a freelancer there are a lot of things that you have to pay for that most full-time employees don’t. Everything from gas, to business cards, to your rent, can be a tax deduction. Keep careful records of all these expenses in QuickBooks and you could save a lot of money when you file your annual taxes. Intuit Turbotax can help you identify a lot of these deductions, but it might be a good idea to work with an accountant to get a full idea of what you can write off.
Find out more about the self-employed life by downloading our free financial crash course in becoming self-employed, from us and QuickBooks.