First-Time Self-Employed Taxpayers: How to File Your Taxes
Tax prep can be daunting, especially if you’re new to the freelance game. Fear not: here’s our number one piece of advice for first-time self-employed taxpayers.
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Now more than ever, saving money and building a nest egg for yourself is important.
However, you can’t plan for the future when there’s debt piling up in the background. Freelancing and earning a steady income is already hard enough, so don’t make things even more challenging with poor financial planning.
Here at AND.CO, we want to empower freelancers with the tools they need to keep their finances on point. So, if you’re having financial trouble, here are 5 easy principles that you can follow to help save money.
Here’s what you need to know:
After all, time is money when you’re a freelancer, which means you have to be as efficient as possible when it comes to getting work done.
For instance, if it takes you all day to write a 500-word article that only pays you $100, then you’re only earning a fraction of what’s possible. Now, if you can churn out 4-5 articles throughout the day, at $100 a pop, now you’re making some real money that you can sock away for a rainy day.
That said, maximize your output by getting as much work done as you can during the day. Once you’re able to start taking in more than you’re putting out, that’s when you can start saving money with other strategies.
So let’s say that you’re pulling in $2,000 a month—good for you!
However, let’s also imagine that you spend $1,000 every month on bills and rent. Right off the bat, you’re already losing half your monthly income, which means anything else you want to buy or need to pay for could leave you in the red if you’re not careful. At this point, creating a monthly budget for yourself can really come in handy.
initially, you only need to calculate how much you need to pay for each month, and then what’s leftover, you can break into smaller chunks and decide on what you want to do with it—spend, save, invest, etc.
Here’s a quick breakdown of a template you can follow—start with what you need to pay for and work your way down to what you can do with what you have remaining:
Now, you have $650 left to do with what you want each month. And who knows—one month you could book more jobs and make double your income or triple! But on a basic level, you can take that $650 and do a few useful things with it aside from hitting the bar or buying some new clothes.
Although it sounds a bit dull, you can always take your earnings and save it for tax season.
Like with this year—due to COVID-19—the tax filing date has been postponed to July 15th, 2020. And chances are that next year’s filing date will most likely get a bump so that people have a chance to play catchup. Plus, filing taxes as a freelancer can be a real challenge if you’re not prepared.
As a rule of thumb, you should always try to save a third of each payday for taxes, especially if you’re self-employed. Unfortunately, your clients aren’t in charge of calculating your taxes for you, which means you need to run your freelance business and act as your own accountant to ensure that you’re meeting all the right guidelines for self-employment taxes set up by the IRS.
Thankfully, the government makes it pretty easy to pay your taxes quarterly, rather than all at once. So, if you make all your income from freelance work, you should definitely put some money away each month so you’re not hit with a huge sum later down the road.
And while you’re planning for tax season, it doesn’t hurt to think about the future, too…
It becomes a lot easier to save money when you know what you’re saving for. Like if you want to travel to Tokyo someday or if you need extra money for a wedding with your fiance—setting aside a dedicated amount of funds every month will help build that future fund and help you stay prepared for any future goals.
You may even want to consider opening a retirement account, like a 401(k), to routinely set aside some funds that you can rely on at an older age. Remember, as a freelancer, you don’t have an employer setting any of this up for you, so whatever initiative you can take to secure your future is always a good idea.
Finally, a great way to save more money is to simply increase your rates for your clients.
Maybe when you first started freelancing, you were charging a lower rate to secure more work. However, now that you’re a pro with some great impressive projects under your belt, there’s nothing wrong with setting new rates for the next quarter.
For instance, if you’re a freelance writer charging only $.10 a word, boost your rates to $.20 per word or $.30 per word—something commensurate with your abilities and what your clients are willing to pay. For graphic designers—if you charge by the hour—increase your rates to reflect what a client would pay a salaried employee doing the same job. For a professional graphic designer, an hourly rate between $35-$50 is more than reasonable for quality work.
More than anything, just don’t sell yourself short. More money equals more savings, so if you’ve been scraping the bottom of the barrel for a while, it’s high time you make some improvements.
As long as you find your savings groove and stick to it, you should have no problem saving money for when you need it most.
Freelancing and keeping track of funds can be a real challenge, but that’s why you have AND.CO to make things easier! With freelance finance tools designed to help you maintain your time and money, freelancing can go from a headache to an absolute joy.
Click here to sign up for AND.CO today and start saving!
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