Freelance work is a hot topic these days—especially among members of our generation and especially among those interested in personal finance. And it’s easy to see why:
- Want extra cash to get out of debt or build an emergency fund? Freelance.
- Want to build your personal brand and visibility within your professional circle? Freelance.
- Want to escape the rat race and work for yourself? Freelance!
Even better, you can often freelance doing something you already love. For someone that has a passion for graphic design, they might design images or headers for websites in the evening. For another person that enjoys playing the guitar, they might teach students how to play on the weekends.
Yes, even you can freelance.
We all have skills that another person doesn’t have. You’re probably really good at something that your girlfriend or brother really struggles with. I despise cooking, but my best friend thrives on it. My co-worker can’t stand personal finance, so I help her with her budget. There is something—no matter how big or small—that comes naturally to each of us that does not come naturally to everyone.
This is where freelancing comes in.
With freelance work, you start by advertising your skills to interested parties that are looking for someone to complete a job or project. Freelance work can also be acquired through job postings just like any other job. But, instead of someone hiring you as an employee, they hire you as a contractor.
Your get paid for your efforts and your “employer” reaps the benefits. In most cases, you’re doing something you love, so it’s a win-win situation.
So how do you get started?
How to Get Freelance Work
There and endless opportunities for freelance work. Often times, prospective freelancers get hung up on translating their skills or talents into a marketable service.
“Who in the world would pay me for that?” is a common excuse.
Plenty of people. You just need to find them.
Websites like eLance.com are an obvious starting point, but the best way to find freelance work is to simply ask.
Leverage both your professional and social networks. Call up former employers and colleagues. Post your services on Facebook. Ask mentors for help. If someone has your dream freelance job, don’t be afraid to ask them for tips and pointers. Consider setting up an informational interview with them. They might know of some potential employers or be able to give you some advice on how to snag some entry-level freelance work. After all, they’ve been there before.
Do not, however, waste your time and money building yourself a Website, printing business cards, or setting up a business entity for yourself before you even have a single gig. That stuff doesn’t matter! What matters is having a paying client. And then another one. And then another…
Preparing for the Financial Impacts of Freelancing
With the perks of freelance work come some additional tax responsibilities. You don’t want to end up like many freelancers who learn this the hard way. Because, as a freelancer, you work for yourself, you’re technically self-employed. This means that you’ll have to file a Schedule C: Profit or Loss from Business and a Schedule SE: Self-Employment Tax.
Don’t panic. This only means that you’ll attach these schedules to your regular tax return. If you make more than $600 in freelance income from any one employer, they’ll send you and the IRS a 1099-MISC form that lists what they paid you.
Usually, when you freelance with someone, they’ll pay you in a lump sum without deducting any taxes. Now, this doesn’t mean that this income isn’t taxable; it just means that you’ll have to calculate and pay the taxes yourself. (So, it’s important to set a portion of your freelance income aside to pay taxes—between 30 and 40 percent is a good rule of thumb.)
You’ll use Schedule C to calculate your total profit or loss from your freelance work. This final amount is carried over to your 1040 form and included in your total income amount to determine your federal income tax liability.
You’ll use the Schedule SE form to determine your self-employment tax. This is different from federal income tax. To make this clear, think about all the amounts that your day-job employer deducts from your paycheck. They deduct things like Social Security and Medicare taxes in addition to federal income tax. Those items are calculated for your freelance income on the Schedule SE. After you’ve calculated the self-employment tax, you are allowed to deduct 1/2 of that tax from your Adjusted Gross Income on your 1040 form.
Finally, don’t forget your expenses! If you work for yourself, you don’t have your employer to lean on when it comes to supplies and equipment. That means you can deduct things you buy to support your work. For example, if your freelance income consists of teaching guitar lessons, you might be able to deduct expenses like guitars, sheet music, guitar picks, studio rental time, music stands, and more from your freelance income. If you only earn a little bit freelancing, you can probably deduct most of your expenses to balance out that income. Hence, it’s important to document anything you buy that could be related to your freelance work.
Anybody can freelance. You don’t need to have some unworldly talents, 30 years of work experience, or the desire to be a super entrepreneur. You just need to know how to do something somebody will be willing to pay for and be willing to put yourself out there. To ask for work.
Do you supplement your income with freelance work? What are your best tips for finding freelance opportunities?