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 Dec 8, 2008 in
Freelancing Full-Time I believe that most anything can be done with a little bit of planning. That includes making the jump to a full time freelance writing career. I became a full-time freelance writer in August and it was very scary at first. For me, the hardest part of the transition was finances - making enough money to cover the bills and have a little money left over.
My decision to freelance full-time wasn’t a hasty one. I’d wanted to do it for awhile, but I always expected to have my cake and eat it to, so to speak. What I mean by that is, I wanted to build my freelance writing salary to the level of fulltime job salary before I made the leap. It could have happened, but I wouldn’t have had a life - or sleep.
Indeed, I had grandiose dreams of becoming self-employed and they didn’t actually come true. Here’s what really happened.
I built a hefty savings. I cut my expenses extremely low and saved as much as I possibly could for six months. During that time, I didn’t many clothes and shoes. I decreased my grocery bill. I cut back on my cable package (I couldn’t bear to cut it off completely). I changed my cell phone provider (switched to the provider most of my friends had so I could take advantage of mobile-to-mobile). I stopped eating out so much.
What you cut from your budget will depend on where you currently spend your money. Look at your spending for a month and use that to help figure out how you can better save. I managed to build a savings that would cover me for six months if I made absolutely no money at all freelancing.
I created my portfolio. I’d had a freelance writing portfolio before but I didn’t really use it because I wasn’t seriously freelancing. As a full-time freelancer, an online portfolio isn’t an option, it’s a necessity. If you don’t already have an online portfolio get one. You’ll need a domain - I purchase mine through GoDaddy.com. You’ll need a host - I prefer HostGator.com. If you’re not a programmer, you’ll probably need a template. Check out Jenn Mattern’s list of places to find web and blog templates.
I decided what services I’d offer and rates I’d charge. My online website isn’t just a porfolio. It also lets potential clients know what I can do for them and how much it will cost. I spent a few weeks doing some business planning and deciding what specific writing services I would offer. I also took some time to figure out what I needed to make to survive and how much I would need to charge clients for that work.
I networked. I never came out and said to fellow freelance writers, “Hey. I’m going to freelance fulltime. Keep me in mind for referrals.” I very well could have. It’s just not my style. Instead, I became more active in the freelance writing world - visiting forums, posting on blogs, and sending ”hello” emails. I really just wanted to be connected with the freelance writers who would soon be my colleagues. I didn’t necessarily have to get any jobs through it, but I have. It just worked out that way.
I read up. Being a freelance writer entails a lot of knowing. You need to know about running a business. You need to know about writing and editing, especially if you specialize in a certain type of writing like press releases or sales letters. You need to know about your niche. Learning is a never-ending process, but I’d be further behind if I didn’t spend time upfront getting to know the business and using that information to plan.
I set a date. After being proposed to, most girls want to set a date. And so I did. I needed a solid day to work toward and I picked one.
I made a plan. I took an 11×11 piece of cardstock and wrote down my idea of a successful freelance writing career. Then I wrote down what I would do to make it successful - how I would market myself, what I would charge, how many clients I would pick up. I defined my target client. For my blogs, I defined my target audience and how I would monetize those blogs. A freelance plan doesn’t have to be anything fancy. In it’s simplest form, it’s what you want to do and how you plan to get there.
I made a backup plan. It’s just not good sense - business sense or common sense - to make a decision without having a Plan B. Even if Plan B is to become a bum and sleep on the streets, at least you’ve got one. I updated my resume and came up with a list of companies I’d apply to if the freelance writing thing didn’t work out.
I came up with an exit point. I defined an exit point at which I would leave the freelance writing business. I based my exit point on financials because they’re concrete. I couldn’t base the decision on anything subjective because I can argue myself either way. Numbers won’t lie. I decided I would start looking for a new job once my savings and project receivables got down to a certain level. If the job market was better, I might let my savings nearly deplete. But since I know getting a job would take some time, I set the threshold kind of high. You might set some other criteria. The key is to have a point at which you say, “Ok. This isn’t working.”
You can tell from this list that becoming a full-time freelance writer isn’t easy. Nor is a decision you can take lightly. Making the transition will go a lot smoother if you plan out as many of the details as possible. Take advantage of the resources you have - the freelance writers you “know,” other entrepreneurs, books, websites, blogs, magazines. There’s a wealth of information out there to help you achieve your dream.
