After literally thousands of income tax filings, we’ve come up with 7 personal finance tips for freelancers and gig workers. There is no question that freelance work and the gig economy have taken the nation by storm. A study commissioned by the Freelancers Union and freelance platform Upwork revealed that the gig economy’s workforce reached an eye-popping 57 million Americans in 2019, with increasing numbers likely to join in the future. You can choose freelancing as your sole source of income or you can do it in your spare time for extra money, but whatever path you choose, you need to pay attention to how you’re managing your money — otherwise, you’re liable to end up facing costly consequences. Here are seven personal finance tips that can benefit every person working as part of the freelance economy.
Financial Tips for Freelancers
Always start with a budget
Being your own boss is a common dream, but it isn’t easy. When you go out on your own as a freelancer or gig worker, you need to be able to gauge how much income you need in order to make it both worthwhile and feasible. To make that determination, you start with how much money you actually need, and that’s where reading some good budgeting tips can help. That’s where a budget comes in. Knowing how much you pay out in bills and other expenses each month, as well as how much you need to save for the future, tells you how much you need to earn.
Create your own withholding schedule
When you’re a W-2 employee, your employer withholds the appropriate amount of federal and state taxes on your behalf and sends them in so that you don’t have to. It’s done with every paycheck. As a freelancer, you are responsible for paying your own taxes, and if you don’t set aside part of your income on a regular basis, you’ll be in for a rude awakening come tax time.
Record what you’re spending and earning
It doesn’t matter whether you use a software package or just keep track using a spreadsheet or ledger, but whatever you do, record every dollar that comes in and that you spend for the business. Not only will this help you know exactly what your tax liability is, but you will have an easy-access record when it’s time to list all of your business deductions. It will also help you to see clearly whether your business is profitable.
Tax Tips for Freelancers
Send the taxes you’ve withheld every quarter.
People who are self-employed are required to send in quarterly estimated taxes to the federal government, their state, and in some cases to their city or county. Failing to do so can lead to penalties, so make sure that you read up on the rules and due dates for each. These taxes can usually be submitted online or via snail mail, and if you choose the latter there are specific payment forms that should accompany your tax submissions.
Last word on taxes – hire a pro
If you’ve decided to be a freelancer, you’ve already taken on responsibilities that go far beyond what most workers carry. Don’t take the risk that you’re underestimating how much you should withhold or what is or isn’t an eligible deduction. Work with a tax professional like us to find out what you can and can’t do. Not only will you feel more secure as you move forward, but we can also give you some help with minimizing your tax liability. Here at Nissen and Associates during the off-season, we offer an initial tax consultation so you can find out if we’re a right fit for you.
Savings Tips for Freelancers
Save for a rainy day
Saving is always a good idea. However, when working as a freelancer/gig worker, you don’t receive paychecks as regularly as when you work for an employer. There may be times when you’re crazy busy, and others when your clients aren’t paying quickly. Building an emergency fund will help you smooth out your ability to pay bills during slow patches.
Be disciplined about saving for retirement
One of the most valuable benefits that comes with many W-2 jobs is a dedicated retirement plan. If you’ve fully embraced freelancing, leaving company benefits behind, you’ll need to set up your own retirement savings plan. Most experts advise treating long-term savings as if they’re a utility bill – something that needs to be paid every month. Setting up automatic contributions to a Roth IRA, SEP IRA, IRA, Solo 401(k) is easy. Best of all, it ensures that your nest egg is building.
Ask any successful gig worker or freelancer about their jobs and you’re likely to hear that they love it. But dig a little deeper and you’ll also find out that they count so many vital activities as their responsibilities. These include their management of finances, taxes and their savings. Follow these tips and include them in your weekly tasks, to set yourself on a path to success.
If you’re a freelancer or gig worker and need a little tax help – give us a call. We’re experienced, friendly and can help set you up right from the get go.
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