Freelancers typically work on a temporary or contingent basis, without a formal employment contract that could otherwise include benefits and certain legal protections.
Freelance work also requires a different kind of financial planning, making up for the benefits and perks that can come with full-time employment contracts.
Having one bank account for both personal and business funds can be messy. With separate accounts, your expenses are clearly differentiated, which is helpful in tax season, and your profits (and losses) are more visible throughout the year.
Your business, like your household, should have a good budget, a list of regular and non-essential expenses as well as projected income.
Look for a bank account that suits your business. Choose an account with a free or low-fee structure for the services you use most frequently.
If you frequently cash or deposit checks at an ATM or a bank branch, make sure the account doesn’t charge an excessive fee (or any fee at all). If you need to accept credit cards or online payments, look for the low transaction fees. Think about minimum balance requirements, fund transfer fees and integration of third-party services, like PayPal, QuickBooks or Bright.
Paying yourself a salary gives a sense of structure and accountability. It also makes it easier to track expenses and a way to be mindful of cash flow.
Paying yourself a steady income will also come in handy when applying for anything credit-related, and it can help structure your savings, knowing how much you can afford for things like emergency funds.
As a freelancer, you’re responsible for your own taxes. (In contrast, most standard employers deduct income taxes from regular employees’ paychecks.) Consider hiring an accountant, who can plan for the taxes you’ll owe, help with quarterly payments and identify exemptions unique to freelancers.
Insurance can be a major expense, along with funding your savings and retirement - all items in a benefits package most employers typically help pay for. Consider adding these costs to your fees and rates. They’re legitimate costs of conducting business and are integral to your profits and losses.
Freelancers usually start off as a sole proprietorship. It’s a straightforward tax status that allows for some business deductions. Securing a limited liability corporation (or “LLC”) can protect assets like your car or home from debts incurred by your business. But LLCs can be expensive to maintain and conditions vary from state to state. A professional account or business software can help weigh the cost benefits.
State and local tax collectors usually offer advice too. Regardless of tax status, make sure you’re registered and licensed to do business in your city, county and state and know when licence fees and taxes are due each year.
Consider the need for professional liability insurance. Some clients require it (or require a liability waiver).
Bright can help with hidden costs of freelancing by automating your savings, so you’re regularly setting aside funds for taxes and other known business costs. Set a savings goal, and Bright can find the fastest, smartest way to get there - automatically.