Freelancing is steadily becoming the norm in the business world. There are 59 million freelancers in the US alone, with an estimated 30 million reportedly in it for the long haul.
And who can blame them? Freelancing is flexible in terms of work location, hours, projects, and clients. And it’s growing globally, meaning a stronger freelance support ecosystem and better paychecks. But while it has fantastic perks, it’s not all smooth sailing. It takes time, effort, and patience to achieve a regular flow of work, and for most, it's a trial and error process.
You can make your journey a tad smoother if you know the mistakes to avoid working as a freelancer. Here are a few.
Some freelancers, especially beginners, may accept any offers to maintain a continuous workflow or build their portfolios. Accepting such offers slows down your growth as a freelancer, distorts how you perceive your skill-worth, and you end up attracting similar offers in the future.
Determine how much you’re worth from the moment you get into freelancing to avoid lowball offers. Consider the following to determine appropriate rates:
Most freelancers assume they don’t need to pay taxes because they’re unincorporated, while others believe they earn too little to pay taxes. This only leaves them knee-deep in tax debt and potential trouble with the IRS.
Every freelancer is considered an independent contractor by the IRS and must pay 15.3% in self-employment tax plus the standard income tax. And to ensure accountability, the IRS recently implemented reporting requirements for payment networks like Paypal, and Venmo, meaning as of 2022, they must include income earned through their networks in form 1099-K.
Consider your freelance gigs as a business, and file your taxes consistently to avoid this common freelancers’ mistake. While at it, ensure you avoid these tax specific mistakes most freelancers make:
Being a freelancer blurs the line between work and personal life. As a result, some freelancers end up overworking, while for others, the freedom comes with long bouts of unproductivity. If you overwork, you end up getting burned out, and when you slack, you do the bare minimum.
Create a dedicated workspace, and schedule your work hours around your most productive times. Striking a good work and play balance will help you avoid drowning in work or doing too little.
Freelancers and other small business owners often start and operate as a sole proprietorship. This allows you to own and run the business while managing profits, losses and liabilities. Each year you'll need to use a Schedule C (Form 1040) to report your income or loss is a simple way to file your taxes.
Down the road you may find yourself ready to scale and needing liability insurance or transition to a Limited Liability Company (LLC) or SCorp, but for now, keep it simple and work on getting your business running and profitable.
These mistakes may seem minor, but they impact how much you earn and your freelance success. Determine your value as a freelancer from the word go to avoid low-paying clients, and create a well-thought-out schedule to strike the perfect work-life balance.
File your taxes on time and maximize Lunafi to help the filing process. Lunafi organizes your earnings and expenditure in monthly or quarterly breakdowns, so it’s easy to track spending. It also features a 1099 tax estimator for real-time tax liability estimates.
Try the Lunafi app today to enjoy these and more perks that will eliminate your finance headaches as a freelancer.
Learn about the importance of the 1099 form for freelancers and independent contractors who work with businesses on a regular basis. This form is crucial for tax reporting and must not be ignored. The article takes a closer look at the reporting requirements for 1099 forms
Are you a freelancer struggling to manage your time, budget, and taxes? Avoiding common freelance mistakes can be the key to success.
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