In December, one of my biggest regular clients had to take a break from projects. That was not good news for me. At the time, that client represented a large part of my monthly income. While I had a few projects lined up for the next few weeks, it wasn’t enough to make up for the lost income. Financially, I had not put myself in a good position.
Typically, our clients can come and go as they please. Just because you have a writing assignment today doesn’t mean you’re going to have that assignment tomorrow. Given that our business is so unpredictable, it only makes sense that your income shouldn’t made or broken by any single customer. I took for granted that I’d have that income and I knew better.
I’m never so comfortable that I don’t market my services and apply for new writing gigs, so it didn’t take long to fill up my calendar. Yet, I continue to remind myself not to get complacent. A single client shouldn’t account for more than 15%-20% of my monthly income. Anything above that is risky.
I wouldn’t turn down or fire a client simply because they accounted for a large portion of my income. Instead, I’d increase my emergency savings and continue to keep my portfolio updated in case the client and I ever decided to part ways.
Posted by on Dec 26, 2008 in
Freelance Finance,
Uncategorized Only a few days are left in 2008 and that means you only have a few days to reduce your tax liability. The more money you make, the more you’ll owe in taxes. If you want to lower your tax bill, here are a few things you can do in the remaining days of this year.
Delay invoices. There are two types of accounting methods for taxes: Cash and accrual. With the cash method, you count income and expenses when you receive and pay them. With accrual, you count income when it’s invoices and expenses when they’re incurred. No matter which method you use, saving your final invoices until January 1 will reduce your income.
Pay January’s health insurance premium. Self-employed individuals can deduct 100% of the health insurance premiums paid. This is a top-of-the-line deduction you can make whether you itemize your taxes or not.
Prepay next year’s web hosting. Business expenses are also tax deductible and reduce your taxable income. If you host websites as part of your freelance writing business, hosting charges can be deducted. Your accounting method (cash vs. accrual) does count here. Paying your web hosting works best when you use the cash method.
Make an extra house payment. Mortgage interest paid is tax-deductible, so sending in a payment before the end of the year gets you closer to home ownership and decreases what you owe the IRS.
Give a donation. If you itemize your deductions, you can deduct any donations you give to charity. Work done for charities counts too. You need a receipt for donations over $250 so make sure you get one. Keep track of what and how much you give to make it easier when you prepare your taxes.
Max out retirement accounts. In 2008, you can contribute up to $44,000 ($51,000 if you’re over 50) to a self-employed 401(k) plan and $46,000 to a SEP-IRA. Your contributions are tax-deductible if you open your retirements accounts and contribute to them before December 31, 2008.
If you want more information about taxes for self-employed individuals, I recommend Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Consultants
by Stephen Fishman. The IRS website is another good resource, but you have you know what you’re looking for.
Disclaimer: I’m not a tax professional. This is advice based on research and personal experience. If you want more information about taxes for self-employed, consult with an accountant or tax attorney.
Having an employer has some perks. One of them is that someone else figures out all the tax stuff for you. Freelance writers (and other freelancers, too) are subject to a wonderful tax known as the self-employment tax.
The self-employment tax is basically double the Medicare and social security tax that you’d pay as an employee. The way the government sees it, you’re essentially an employer (of yourself) and an employee (of yourself). As such, you should be paying employer and employee taxes.
As of 2008, the self-employment tax rate is 15.3% of your income. 12.4% goes toward social security. The other 2.9% goes toward Medicare. Anything you make over $102,000 is only subject to the Medicare tax rate of 2.9%.
Anyone who expects to owe more than $1,000 in income taxes is required to pay taxes throughout the year. When you’re employed by a company, they withhold your taxes for you. However, as self-employed individuals, we’ve taken on the responsibility of figuring up taxes and sending the tax check to the IRS. Use IRS Form 1040-ES to calculate your estimated taxes. The IRS requires estimated taxes to be sent on a quarterly basis.
Tax rules are complex and the information I’ve included here is simply a brief overview. You can understand more about self-employed taxes from the IRS website, your accountant, or a professional tax preparer.
Posted by on Nov 19, 2008 in
Freelance Finance As you evaluate your progress in 2008 and plan your goals for 2009, your freelance writing rates is one of the things you should think about. Is it time to increase your rates?
Here are some questions you should answer as you consider raising your rates:
- Has the demand for your services increased?
- What will allow you to command a higher rate?
- Can your current market pay you a higher rate?
- Can another market pay you a higher rate?
- Are you having a hard time living on your current rates?
- Are you providing exceptional value at your current rate?
- Will you continue doing an exceptional value at your new rate?
- Do you meticulously keep deadlines and make sure your clients are happy?
Increasing rates isn’t for everyone. Freelance Folder has 3 reasons you shouldn’t raise your rates. In a nutshell, if you’re not being the best freelance writing possible, you should probably keep your rates the same until you’ve improved your services.
If you decide to raise your rates, then you need to decide if the rate increase is going to apply to both old and new clients. You might keep some of your old, loyal clients at the same rate and apply the new rate only to new clients. Or, you might allow your old clients to enjoy the old rate for a few months before applying the new rate to their orders. In either case, it’s a good idea give old clients at least a couple months notice before applying the new rate.
Increasing your rates isn’t mandatory. There’s nothing wrong with continuing to charge the same rate throughout 2009 or increasing them on some other timeline. The important thing is that you evaluate your rates and take action where necessary.
