I’ll try to hit a few transparency targets around dealing with taxes as a freelance writer in this post. We probably need to begin with a little bit of personal backstory.
The background leading up to freelancing
I moved to Texas in July 2014 for a job at a B2B travel consortium company in Fort Worth. I lasted at that job around 17 months and got canned. The actual day of the firing was the same day as the Paris attacks; just figured I’d throw that in for some additional historical relevance.
That was November 2015. I had a small severance but no real plan. Seeing as how it was before the holidays, I pretty much spent the 2015 holiday season drinking and feeling sorry for myself. Always a fun time to be alive.
In January 2016, I had about four different sets of interviews for jobs. None of them really panned out. I got far on two of the four but didn’t get them. So around late January 2016, I needed some kind of plan. I didn’t want to go through some long, drawn-out hiring process to ultimately not get a job for some subjective reason like my hair.
At this time, I was making maybe $500 to $1,000/month on the side doing some writing projects. My wife had a full-time job, but $500/month on my side wasn’t enough. So I started cultivating some freelance clients and opportunities.
That job I got fired from, I had been making $72,000/year or so. I knew freelancing would be hard — “a hustle,” if you will — so I figured a good year would be about $45,000.
Here’s what happened on the taxes side
First off, I asked my therapist — yes — how this all works. He told me we needed to pay quarterly taxes, which is detailed a little bit in this blog post. The actual IRS guide to self-employed quarterly taxes is here, and the actual form you use is the 1040-ES, which can be paid online or via mail.
Now you know the forms and resources. Next step is figuring out what your percentage is. There are different approaches to this. I was thinking I’d make $45,000 or so; I ended up making about double that. (I got lucky in some spots.) When I initially asked one of my friends, he told me to slot 15-20 percent of every paycheck towards quarterly taxes. He had been paying them for years and making more than $45,000, so he seemed to know what he was discussing and I went with that. I dumped about 16 percent of every payment I got into an account for quarterly taxes.
There is a more scientific way to do it, detailed in this post. I’ll probably do that in coming years, but in the first year, I think just making sure you have the right systems is important.
Like what systems?
Freelancers get paid in different ways, obviously. In 2016, I was probably 80 percent PayPal. PayPal has accounting functionality within it, and it keeps records of everything you received via your account. Also: if you upgrade to PayPal for Business Payments, you can see less fees when you get paid. (50 cents vs. 2/3 percent, I believe.)
Even though I was mostly getting paid via PayPal, I set up a Google Sheets within my Google Drive where I recorded every payment. I listed:
- Who paid me
- Exact amount
- Source (PayPal, check, cash, etc.)
The quarterly tax deadline dates cut-off around March 31, May 31, August 31, and December 31. So after my last payment on those four dates, I left a blank row and bolded the next quarter, i.e. “Q3 starts here” or something.
Then I could easily scroll down from the beginning of Q3 to the end and Sheets would tell me what all the “exact amount” column added up to. I could multiply that by .16 (16 percent) and determine my payment.
You can also use Intuit business resources, and ultimately I organized and filed through TurboTax, which is an Intuit product. I’ll be the first to admit that I don’t fully understand taxes as well as I should, and TurboTax is good in that regard because it’s an extremely intuitive, guided product for the less-informed tax-filers.
So what happened?
Because I made more money than expected, I did have to pay the IRS for 2016. (I was hoping not to, but alas.) The good thing? I did better than expected. The other good thing? I learned a little bit in the process about how to file as a freelancer and some “hacks” and “tricks” along the way.
If you have any additional self-employed filing tips or hacks and want to leave ’em below, let me know. Meanwhile, it’s back to that proverbial hustle.