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If you’re earning money on the side as a freelancer, you know there are many advantages to the gig. Still, there are a few things to keep in mind to make sure you come out on top financially.
Over the past few years, I’ve worked freelance as a food delivery driver and as a transcriptionist. In this article, I’ll take a close look at a few things that you should know about earning money as a freelancer/independent contractor.
Freelancing is a great way to earn extra money. There’s basically no limit to what you can do as a freelancer, and being able to set your own schedule is a major benefit. But you’ll need to manage your finances efficiently so you can prepare for potential expenses and withhold the appropriate taxes.
Whether you’ve been freelancing for months or you’re just getting started, here are four things to know about the job:
Freelancers are self-employed individuals, They generally decide when and how to complete their work. While many freelancers do contract work for other companies or businesses, they’re considered to be independent contractors as opposed to employees.
According to the IRS, the general rule is that an individual is considered self-employed if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.
Basically, freelancers are expected to complete a task or create a product, but how it is completed/created it is up to them. This is the case for self-employed business owners who work for themselves as well as independent contractors who complete work for another company. Of course, being a freelancer doesn’t have to be your only job or even your primary job. In fact, many people choose to freelance part-time as a way to earn supplemental income.
Typically, freelancers don’t receive benefits such as employer-provided health insurance or vacation days. A freelancer’s earnings are also subject to self-employment tax since an employer isn’t withholding taxes on the worker’s behalf.
If you aren’t sure whether you’re considered a freelancer or an employee, visit this website to find out.
As a freelancer, you’re able to decide when and how you earn money. You can choose to freelance for a company as an independent contractor or set your rates in exchange for a product or service. Whichever route you take, there are virtually unlimited opportunities to earn money as a freelancer.
If you haven’t already started freelancing (or if you’re looking for more opportunities), consider working for a company that frequently hires independent contractors. Depending on where you live and your vehicle, you could work as a driver, food deliverer or personal shopper. If you’d rather work from home, there are tons of opportunities for online freelance work as well.
Here are a few popular options for freelancers:
No matter which company (or companies) you decide to work for, you can generally expect that you won’t be able to set your own rates, but you will be able to set your own schedule. With these types of freelance jobs, you can expect a weekly paycheck based on the work you’ve completed.
Alternatively, you may decide to set your own rates in exchange for a particular service or skill. You can offer general services like cleaning or moving, or you can offer any services you specialize in such as photography, writing or IT support.
If you’re freelancing in this capacity or working toward building your own small business, consider advertising online to increase your clientele. Here are a few popular websites where you can advertise your services:
For more freelancing opportunities, be sure to check job posting sites like Upwork, FlexJobs and Indeed frequently. Note that some listings on these websites may be restricted to paying users, but you should be able to see and apply to some jobs for free. As you’re searching for jobs, you can filter your search results to include only contract or freelance work.
Keeping up with your taxes is one major drawback of being a freelancer since you won’t have an employer withholding them for you. Instead, you’ll have to pay your own income tax in addition to a self-employment tax.
As a freelancer, you’ll need to make estimated quarterly payments throughout the year in addition to filing your annual tax return.
To cover your income taxes as a freelancer, you should plan to set aside around 30% of your earnings each time you get paid. Periodically, you send what you’ve withheld to the IRS as an estimated payment. Those payments are due on the following dates:
You can use Form 1040-ES, Estimated Tax for Individuals to figure out the specific amount that you should send in. This form also contains additional documents that you should fill out and keep for your records regarding your quarterly earnings, estimated tax payments and deductions. These will be useful when you’re filling out your annual tax return.
When you file your annual tax return, you will need to report your self-employed earnings. These earnings will be subject to a self-employment tax of 15.3% to cover Social Security (12.4%) and Medicare (2.9%) taxes.
If you worked as a freelancer for a company such as DoorDash or Uber and earned more than $600 at each, you should receive a 1099-MISC form from each company at the end of the year. Of course, you will be expected to report all of your earnings on your annual return and pay the appropriate taxes whether or not you made over $600 from a company or receive a 1099-MISC form.
As a freelancer, you are able to deduct business expenses.
According to the IRS, “To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.”
There are two major types of deductions you may be eligible for as a freelancer: Business use of your home and business use of your car. If you work in a home office or use your car working as a driver/personal shopper, you might be eligible for these deductions.
You may also be eligible for additional deductions including business travel expenses, retirement savings and health insurance fees among others. This is especially true if you work more than part-time as a freelancer. For a full list of eligible deductions, see Publication 535 on the IRS website.
For more information on how to file taxes as a freelancer, visit the IRS Self-Employed Individuals Tax Center online.
Freelancing can seem overwhelming at first, but it can also be a great way to make extra money. If you’re just starting out as a freelancer or looking for ways to maximize your part-time income, follow these tips:
Ultimately, freelancing is a great way to earn extra cash. You’ll just have to keep in mind that any earnings you make as a freelancer will be subject to self-employment tax. Plus, you’ll have to withhold your own income tax.
If you’re looking for ways to earn more money, consider signing up as an independent contractor with a company like DoorDash, Uber, Shipt or Rev. You can also search for freelance jobs online to find a variety of opportunities.
As a freelancer, you’ll love being able to set your own schedule and complete tasks in your own way. Whether you’re working for a company as an independent contractor or offering your services on the open market, the flexibility is hard to beat. It’s one of the reasons that freelancing is such a great way to earn extra money. Still, it’s essential that you stay consistent and keep your finances organized so that you can maximize your earnings and make your estimated tax payments on time.
Do you earn money as a freelancer? Tell us about your experience in the comments below!
This post was last modified on December 20, 2023 12:41 pm
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