Being a freelancer can also come with its fair share of challenges. You have to market your own services, manage client expectations, stay on top of bookkeeping, and file taxes as a self-employed professional.
As a freelancer, what can you do to make sure you don’t drop the ball on being financially healthy?
Being a freelance professional can be a bit of a juggling act. If you don’t lay down an organized foundation for how you’re doing business, things can get messy, fast.
Start with your very first client. Collect important information from them – like name, email, phone number, date of birth – and catalogue the data in a safe and secure place online.
Using online tools to keep things accessible and standardized can be very helpful.
Log important business records
It’s absolutely critical to keep records of your freelance business so you understand exactly how cash is flowing in and out. It will also help tremendously in the case of an audit or if you ever apply for a loan.
Document the hours you’ve spent working with each client or completing specific projects for each client. Make sure you communicate the cost per hour or per job with each client and record it accordingly.
Most importantly, be sure you’re tracking:
– all of your business expenses – hold onto receipts for them, even for purchases that are less than $75.
– all payments you make, including bank transfers and other forms of digital payments
– all payments you receive from your clients
Know what you can deduct from expenses
As a freelancer, there are several expense that can be tax deductible. If you have an office area set up in your home or garage, you can write off a portion of your rent.
Other deductible expenses include equipment, certifications or education costs, certain travel expenses (like conventions or seminars). Check with your accountant to see what other expenses can be offset against taxes.
Keep your tax bill in mind
On the flip side of being able to write off certain expenses, freelancers must account for the taxes that are not automatically deducted from paychecks as they normally would be when employed by a company. This means that you need to plan ahead for taxes you may owe to the IRS.
Be sure you understand which tax bracket you fall into, and what percentage of taxes you should expect to pay from your total income.