You have finally fulfilled your dream of freelancing full-time! You get to enjoy all the perks of a job you love plus flexibility and increased control. However, don’t get too comfortable at your laptop or studio just yet. First, be sure that you understand the ins and outs of working for yourself. Here are three things to know about freelancing full-time.
How Taxes Change
Now that you are a freelancer, your tax world is about to get pretty gnarly! Everything changes when you work for yourself. With an employer, you don’t have to even think about taxes until April. Your employer takes care of them for you. However, as a freelancer, all of that work gets placed squarely on your shoulders. Not only do you get to periodically pay your taxes directly to the IRS, but you also get to figure out how much to pay. The most important thing you can do is keep a meticulous record of your earnings and expenses. If you are ever audited, you will want proof of every single monetary transaction. Also, be aware of what taxes you are required to pay. Think federal, state, local, and Self-Employment taxes.
Finding Your Own Health Insurance
If you worked for an employer previously, you probably got company health insurance. Now, you need to find and fund your own. You could go several routes with this. There are governmentally subsidized plans for people who qualify, as well as military programs, short-term plans, limited benefit plans, and full benefit plans. Your most important resource is the Health Insurance Marketplace, which is the federal government’s answer to the Affordable Care Act. And don’t forget dental insurance. Dental insurance generally covers procedures that are medically necessary.
Saving for Retirement
Because you are self-employed, you are on your own when it comes to a retirement plan. A common plan for freelancers is a Simplified Employee Pension plan, or SEP IRA. This savings plan is available to sole proprietors, and contributions can be tax-deductible. Another good option is a Solo 401(k) plan. You are eligible for this plan as long as you don’t employ anyone else. One perk of the solo 401(k) is that you can contribute to the plan as both the employer and the employee.
There are many benefits to freelancing full-time. You get increased flexibility and greater control over your schedule. Just be sure to do your homework first. Figure out your taxes, then move on to insurance and retirement plans. Once that’s all settled, go and live the dream!
Check out this article on the pros and cons of starting a business!