People seem to send me more guest posts these days. As I’m busy with my day job, I post the ones I think will be useful to you. This post is by Damian Davila.
A few years ago, I was a contractor at a company. This means that the company isn’t claiming you as a employee. As such, you are a freelancer and responsible for paying employee-related taxes to the government. I happily spent my extra money and got hit by a big tax bill. I wish I had read a post like this back then as I’m pretty horrible with my books.
Are you freelancing? Pay attention to the tips in this article as the old saying about death and taxes is true.
This article covers how freelance article writers can keep more efficient track of revenues and expenses, and what tools and templates make billing and budgeting easier.
There are about 53 million Americans freelancing, generating an estimated $715 billion in earnings to our economy. When thinking about freelancing, the image of the freelance article writer often comes to mind.
With a median annual ranging from $51,940 to $61,630 back in 2012, freelance writing is an attractive career for those looking for schedule flexibility.? However, freelancers cite finding work and income stability as the top barriers to the industry.
In this article, we will cover how freelance article writers can keep more efficient track of revenues and expenses, and what tools and templates make billing and budgeting easier.
1. Work with a Tax Professional
Your I-can-do-this attitude is great when it comes to tackling big and hairy projects that nobody else wants to take on. However, you’re better off hiring a pro when it comes to filing your Schedule C (mostly used by freelance writers) with the IRS.
Sole proprietorships (a.k.a. freelancers) using a Schedule C are twice as likely to be audited than a corporation. So, improve your odds against an audit, and be better prepared if one occurs, by having your taxes done by a professional. For example, my tax guy warned how filing Form 5213 instead of Schedule C isn’t a good idea for freelance writers because it virtually guarantees an audit at the end of five years.
Take the time to choose your tax preparer. The IRS provides 8 useful guidelines when choosing a tax preparer.
Budget for Estimated Tax Payments and account for your Social Security obligation as a self-employed earner. That will help you avoid accumulating a big tax debt when taxes are due and stay away from IRS tax problems.
2. Open a Separate Checking Account
This is another tip that I received from my own tax guy.
In case of an audit, having a separate business checking account demonstrates your due diligence in keeping business and personal charges apart. Also, your bank statements would double as backup for proof of expenses in case you were to lose any receipts.
Shop around for a checking account with low fees and high yield. Such accounts are often found in credit unions.
3. Get a PayPal Account
If you don?t have a Paypal account yet, you need to get one today. There are five reasons to do so.
- PayPal allows you to receive immediate payments, which is better than waiting for check in the mail, only to then drive to your bank to deposit it.
- It provides a free card reader that charges just 2.7% per U.S. swipe transaction (versus 2.75% with Square), so you can use your smartphone to charge local clients via credit card on the spot.
- By connecting your checking account, you can transfer funds from and to PayPal.
- PayPal has a business debit card that has no annual fee and earns you unlimited 1% cash back on applicable purchases. Use your card to withdraw cash from any ATM or from any debit purchase with option for cash back.
- PayPal allows you to receive payments from international customers, effectively expanding your potential customer base.
However, the convenience comes at a cost: PayPal takes $0.30 + 2.9% for each incoming client transaction. For example, from a $300 client payment, you would only see $291.
4. Work with a Cloud Accounting Solution
Of course, having two accounts to receive payments can get cumbersome.
That’s why you need to work with a cloud accounting solution, such as Xero, Intuit QuickBooks, or FreshBooks. The main reason to go for a cloud-based solution is that you have much more flexibility to process invoices. You can do your billing from any computer with an Internet connection or from your smartphone or tablet. Not to mention that these platforms make your invoices look much more professional than any Word template.
Tip: If you’re in the U.S. and you receive the bulk of your client payments through Paypal, consider using Freshbooks as your cloud accounting solution. Unlike Xero and Intuit QuickBooks, Freshbooks offers Paypal Business Payments, which reduces your Paypal cost to $0.50 per transaction. Remember that when using Paypal Business Payments, your client can only pay only through eCheck or Paypal balance so it may not work with all your Paypal-using clients. Still, just billing a $1,000 invoice through this method, would save you $28.80 in fees!
With cloud accounting solutions, you can connect your checking and Paypal accounts to the platform so that the system helps you keep track of your payments and expenses:
- By creating client profiles, you can allocate invoices and expenses much more easily than with a paper-based system.
- Attach images of receipts to expenses paid in cash so that you can assign those expenses to specific clients.
- The system allows you to create detailed net income reports, determine how long clients take to pay, and send reminders for unpaid invoices.
Another useful feature from cloud accounting systems is the ability to share your financials with your accountant by giving her read-only access to your business reports or journal entries.
5. Keep a Blog Editorial Calendar
There are a lot of templates out there that you can use to build your blog editorial calendar.
The one that you want is the one from Hubspot. Not only can you download this blog editorial calendar for free, but also it gathers all key data (e.g. keywords, due dates, publish dates, and CTAs) about your articles in one place. This is a great template to start with, and it is very easy to add more columns as necessary.
To keep things in sync with your cloud accounting system, make sure to use the same article title in both places so that you can cross-reference more efficiently.
6. Budget for Monthly Living Expenses
By keeping a blog editorial calendar and leveraging your cloud accounting system, you can budget more accurately for incoming and outgoing monies. Now you will have a clearer picture of what your typical month of freelance writing looks like.
Here comes the hard part, you need to determine what are your monthly living expenses. A useful guideline is the 50/20/30, which means that you allocate from your income:
- 50% to necessities (e.g. rent, transportation, childcare);
- 20% to personal finance (e.g. 401(k), student loan payment); and
- 30% to discretionary spending (e.g. eating out, travel).
Depending on your unique situation, you may opt for a 60/20/20 or 40/25/35 allocation. However, the main idea is that you’re aware of your spending patterns, retirement saving efforts, and minimum monthly requirements.
Using these six steps, you’ll be in better shape to budget and keep track of your finances as a freelance article writer much more efficiently.