Freelance work can be liberating but also challenging. And if you’re working on contract, it’s probably because you recognize that your skillset is unique and in demand and are able to therefore “play the field” (if you haven’t, it’s a great selling point for finding work and negotiating wages).
While finding work has its own challenges, the extra work you have as a contract worker can sometimes overshadow your hired responsibilities.
Contractors vs employees
As a contractor, you take on the responsibility of your own financials. Since you’re not a full-time or part-time employee, you lack vacation pay and benefits, and the comfort of knowing that someone else, with a whole lot of knowledge and experience about employment laws and regulations, has your back.
As soon as you hear financial planner, your brain might just shut off. Accurate? Instead of digging through the weeds to figure out your contracting financials, we’ve laid out all you need to know to plan.
Financial planning and analysis
Budgeting is a big word, but planning needs it. And your survival as a remote contractor relies on planning.
Of course, your budget should include projections for all costs. What about taxes, savings, professional services or outsourced tasks, insurance, supplies, etc? Those costs can build up too, and if they’re neglected or are pulled out of a hat…ouch. The good news is, most of these expenses can be deducted, but only if you do the work to track or invest in a finance tracker.
Since freelancers are usually involved in several jobs at a time, tracking income can get messy.
Use financial planning tools like QuickBooks Self-Employed to keep records of your remote work income and expenses. Additionally, Wave is a well-known and free accounting tool that helps freelancers track their expenses and create invoices.
Invest in an online financial planner. Among many others, Mint.com can help develop plans for independent workers on a budget to ensure they stay on track.
2. Preparing for tax time
Does tax time terrify you? If it doesn’t, you’re either experienced in business taxes, outsource tax tasks to a professional, or else you’re ignoring the thought altogether. Where regular employees (non-freelancers) have certain tax amounts taken from each paycheck, freelancers still have to report income. Otherwise, there will most definitely be problems down the road.
Whether using TurboTax or an affordable local accountant, the associated costs are worth the security blanket.
In terms of income, you need to claim basic income tax as well as self-employment tax, which represents Social Security and Medicare.
Forms for freelancers:
- Form 1099-misc
- Form 1040-ES
Since we’re talking about financial planning, let’s start with 1040-ES. ES stands for estimate. This tax is for self-employed individuals to be paid quarterly. This requires a bit of attention. So while planning finances, it’s important to include your taxes.
Filing for cross-state freelancers
On the subject, consider how your taxes might be affected by your location. Do you live in a different state from your client? How about a different country?
In these cases, you’ll need to prepare for different regulations and understand what you need to pay and what you don’t. Imagine, you’re taxed by your home state, and then again by the state of your client. What’s going on?
Believe it or not, if you’re taking money from a client in another state, you’re required to fill out a 1099 tax form. Whether they request it or not, you must file. The client’s state needs to know how much money is going out (as invasive as that might sound, it does make sense). But don’t worry, it doesn’t mean you’ll owe twice. File with your client’s state first, then take a credit on your home state return for taxes paid to the non-resident state. This way, you won’t be double-taxed.
It’s important to call your state tax department for more information. All states have different minimums for filing. For example, GA requires a return on income over $5000. Or, there could be no minimum. Look into tools like Keeper, which helps you with automatic expense tracking, quarterly tax payments, and end-of-year tax prep.
3. Don’t forget about you
Pay yourself, but don’t blur the line between accounts. Your business represents a huge part of your life, but your personal expenses shouldn’t overlap with your business expenses.
As a contractor, you get tax deductions. No, you deserve tax deductions, just as much as any company or agency, if not more. Deductible items are necessary to your job.
That said, when collecting supplies, every decision counts. Shop around to find the best options for your supplies and look into what’s deductible. Don’t risk an audit by the IRS because you failed to separate business and personal expenses.
Lastly, as important as it is to keep up with your expenses and payments, it’s also important you don’t let it all swamp you.
4. Getting paid online
Today, it’s pretty hard to get paid as an independent contractor without using online payments.
Use an online finance calculator, such as Your Rate, which can help you project your rates and hours.
Get your payments in line and your clients on board with your preferred payments platform. Veem’s integrations make it easy to connect your existing accounting software. Additionally, you’re able to select our invoicing templates and request payments when your clients fall behind.
We’ve simplified the complicated process of B2B wire transfers so you can focus on what’s important.
While the finance world can be tricky and daunting, the resources available should make it pretty hard to fall behind on your expenses. Keep your money in line and your books up-to-date and organized.