A while back, I wrote a post on freelance work and sites where you can find business. Some of you might be considering working for yourself. There are advantages:
- Flexibility
- Often leads to a full time job
- Competitive contractor pay rate
- (Sometimes) you can work from home
- Helps you narrow your focus or see what you do and don’t want to do
- Provides ongoing visibility and continuity in your field, keeping your skills sharp
Further, you can deduct for things such as: mileage, entertainment, dining (work related only), office supplies/software, tax preparation, postage, and professional association publications and memberships. And if you’re working from home, you can deduct a percentage of your expenses for: electricity, phone, water, homeowners insurance, security system, internet service, cell phone, and computers purchased. More info here from the IRS.
It’s better to count your expenses as you go, so as to not overpay your estimated taxes each quarter (vs. batching all your expenses and using them against one quarter.) Make a spreadsheet to track these.
And there are 3 main ways you can charge for your service…
- By the project
- By the hour, or
- On retainer (where the customer pays you a regular fee and you provide the full volume of service they need each month)
There’s not a minimum number of hours per month you must work to be self-employed. Unless you’re going to officially set up as a Sole Proprietorship, LLC, etc.–and you don’t have any employees but yourself–you don’t need to register with the government, file for an EIN, or do any special forms to begin working for yourself. You will need to fill out and send a W9 to any company using you as a vendor where you will earn more than $600 in a year for your services. Early the next calendar year, look for a 1099-MISC from that customer and the equivalent state form.
Some work may require a Business License, so check with your local county clerk’s office. And you should check with your local Taxpayer Services office about collecting and remitting sales tax.
You’ll just need to pay taxes on your estimated quarterly earnings (deadlines are Apr 15 for Jan-Mar, Jun 15: Apr-Jun, Sep 15: Jul-Sep, Jan 15: Oct-Dec) and hold out enough along the way to cover Self Employment Tax (Medicare & Social Security–usually about 13-15% of your monthly total earned) and Federal Income Tax (since an employer is not paying this in on you; the amount will depend on if you’re filing Single No Dependants, etc.) SCORE (800-634-0245 for the office nearest you) or your CPA or tax preparer can help you estimate your taxes. Different deductions count toward different taxes you’ll incur.
Your local Entrepreneurial Center and Small Business Center can be good resources too. If you choose to go this route, there are some important factors you’ll want to be on top of. Check out this great article by Consultingsuccess.com for some great advice.
What’s the most important thing you’ve learned being self-employed? Your greatest challenge? For those of you who are considering being self-employed, what’s your greatest concern or hesitation? Post below in the Comments section, and let us know.
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