Did you know that over 50 million Americans are freelancing today? According to Dave Ramsey, freelancers are expected to make up the majority of the United States workforce within the next decade. So, whether you want to give freelancing a try or not, it’s worth understanding how it works.
While the thought of having to depend on yourself for all liability and responsibility is a bit overwhelming, a recent study showed that 77% of full-time freelancers found their work/life balance to be better thanks to the flexibility of their freelance career.
In this article, we will look at what a freelancer does, who this person is, and the benefits and challenges that come with being your own boss. We’ll also look at approximately how much you can expect to make as a freelancer and some ideas on what kinds of jobs freelancers take.
After that, we’ll take a look at exactly how you can get started freelancing in a step-by-step manner along with actionable things you can do for each step. For example, there’s a list of freelance sites that hire freelancers to do part-time work.
Finally, we will examine the tax implications that come along with freelance work, including the types of deductions you are allowed to take, such as the home office deduction.
Who is a freelancer?
Usually, a freelancer is a self-employed person who pays their own income tax (self-employment tax), who does not employ other individuals, but who may outsource specific projects.
Typically, a freelance worker has full control over where they work and what hours they chose to keep; they maintain many short-term commitments, rather than one long one (like you would have at a company with a full-time job).
Each freelancer is different, though, so this is not always the case. Some freelancers keep a regular schedule and have only one client. It’s really a subjective thing.
What are the pros and cons of being a freelancer?
These are the most common pros that come with freelancing:
- Freedom – the choices are limitless on how much you want to grow
- Flexibility – the ability to work anywhere you want to
- Control of Workload – you can take on as much work as you can handle
- Set Your Own Hours – you can work whenever you want to
- Independence – don’t have a boss breathing down your neck
- Variety – can choose to work with different types of people on different subject matters
The most common cons that come with freelancing are as follows:
- Taxes – must pay self-employment and income taxes; responsible for filing and keeping track of your own tax liability
- Lack of benefits – don’t have an employer to offer you perks like health insurance, PTO (paid time off), or a 401K
- Uncertainty – you must face the fact that you may only get sporadic work; clients may come and go; there’s a lack of stability
- Responsibility – freedom is great, but it comes with a lot of responsibility if you are to keep the cash coming in at a steady pace
- Cash Flow Issues – when there’s a down period, you don’t get paid; with a full-time job, you get usually paid even when things are slow
- Isolation – typically, you don’t have coworkers to talk to; you are on your own
How much money can I make as a freelancer?
The amount of money you make depends on your field, your skills, and the quality of your output.
Other factors may come into play as well, such as education, experience, and expertise. Some freelancers survive on $1,000/month, while others make $100,000/month.
Usually, you start out at the lower end of the spectrum. As you gain experience and expertise, you can raise your rates and begin to make more money.
If you invest in learning new software or in improving your existing skills, you can probably earn the big bucks! It all depends on you and your motivation!
What are some examples of freelance jobs?
A few examples include writers, bloggers, graphic designers, digital marketers, social media managers, marketers, artists, actors, and consultants.
Check out these websites for lists of many more ideas:
- The Top 10 Freelancing Websites
- 26 Freelance Jobs You Can Do From Home
- 78 Best Freelance Jobs Websites to Get Remote Freelance Work (Fast) in 2020
- The Ultimate List of 101 Job Ideas for Wannabe Freelancers
How can I get started as a freelancer?
- Decide whether freelancing is right for you.
Call to Action: Review the pros and cons listed above. Do some research on your own; think about the cons and decide whether or not you can live with those. If you think it’s worth the risk and investment, go for it! But do your homework first.
Note: Freelancing isn’t right for everyone. The Harvard Business Review takes a good look at this topic. They advise short-term freelancers to try to make as much money as possible while still maintaining time for their job search at an actual company.
- Find the right platform for you.
Call to Action: There are tons of places online where you can go and hook up your skills as a freelancer with those who are looking for, well, you! Just find a platform where you feel comfortable, and go from there. Try a few out to gauge what is best for your situation.
Note: Tech Radar has a great list of the top 10 freelance platforms in 2020 for you to choose from. They list the pros and cons of each one. Each platform allows a freelancer to offer their services to clients. Some of the ones listed are:
- Build a website, profile, and portfolio.
Over time you will be able to do this. As you continue to be a successful freelancer, you can build a portfolio of your work, one that you can show potential clients so they can see what you are made of.
Call to Action: Create a blog to showcase your work and an “about me” section (or a profile). If you don’t have enough work to show off yet, work on creating a killer profile on the platform of your choosing.
Follow the examples on the forum you chose by looking at the profiles of successful freelancers; see how they word things, and you will get the drift on what to include on yours.
Note: Here are a few articles on how to create the best profile that you can and the benefits in doing so.
- Find Work
Call to Action: Now is the time to search for people who are looking for your skills. Use the tools in the forum you chose, and search for the keywords related to the skillset you possess. Master the art of creating a tempting proposal, so that you can send out killer proposals to each person you wish to work for.
How do I file my taxes as a freelancer?
If you net $400/year or more, you must pay taxes on your freelance earnings.
Step One: Gather all your sources of income. You may receive 1099 forms from your clients or from those who you worked for. Save all of these in a safe place so you will have them ready come tax season.
If you are expecting one from a client who has not sent you one by the end of January, it’s time to reach out to that person. You may find it simple to keep track of all your clients, payments, and projects in a spreadsheet format.
Step Two: Pay the self-employment tax. As a self-employed individual, you are not only responsible for your regular income tax, but you must also pay self-employment tax (15.3%).
The 15.3% includes the amount for Social Security and Medicare. Since you are self-employed, the IRS considers you to be both the boss and the employee.
Step Three: Take all business-related expenses as deductions, but watch out; the deductions you take must be ordinary and necessary.
Generally, freelancers can deduct business-related food, lodging, equipment, and materials; they just must be ordinary for the business that the taxpayer is in and necessary for the freelancer to perform the work.
Some of the trickier deductions that you may be able to take include meals, travel expenses, certifications, education, telephone service, and internet service. Each has its own set of rules that must be followed in order to deduct them on your tax return.
Can I take the home office deduction?
Many freelancers have the privilege of working from home. For those who do, they may very well be eligible for the Home Office Deduction, which allows them to write off the expenses related to their home office.
Things that might be included are office supplies, business cards, certain household expenses, and online services that are needed for the small business to run smoothly.
The biggest caution about taking the home office deduction is that the space must be exclusively used for business; it cannot be a multi-purpose area. For more information about the home office deduction, check out this article.
You should now understand who a freelancer is, what the pros and cons of freelancing are, how much money you can make by freelancing, and what kinds of jobs freelancers take. You’ve been given the tools to get started if you deem this is the right choice for you, and we’ve gone over the tax implications.
Need help with the tax implications or help setting up the business-side of your freelancing biz? Borshoff Consulting can help! You can trust Indiana’s tax expert to point you in the right direction. So, if you are ready to take the leap into the freelance world, contact us, and we will help you get started!