I’ve Been A Freelancer For 6 Years, And I Swear By These 10 Budgeting Hacks
When I made the switch to full-time freelancing, I very quickly realized how much that take-home pay shrinks after taxes are accounted for. A good freelancer friend of mine was not aware of this and ended up draining her savings one year. Another also was not aware and was backlogged in owing taxes for seven years.
So what exactly are these freelancer taxes I speak of? First, you need to pay both halves of FICA, aka self-employment tax. To be specific, in 2021 that’s 15.3% of your net earnings, and it is made up of 12.4% Social Security tax and 2.9% Medicare tax. It’s a lot.
Plus, you’re on the hook for paying Uncle Sam on your income taxes when tax season rolls around. I was lucky enough to learn from others’ mistakes, and aimed to set aside at least 25% to 30% of all my self-employed income to cover taxes. (Some folks I know save 50%.)
Chances are the amount you are on the hook for could be less than that, as you’ll most likely be writing off certain expenses and possibly socking money in tax-advantaged accounts (hello, traditional IRA!). But you want to err on the side of caution. It’s far better to have too much than not enough.
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September 14, 2021 at 06:57AM