Working as a freelancer can come with plenty of freedom, but it can also bring financial uncertainty. Freelancers often face variable income, payments that come later than promised, and higher out-of-pocket costs for medical insurance and taxes. Financial planning is essential for managing your future as a freelancer and overcoming these hurdles. Jan Gleisner, a reliable financial advisor in San Diego, has a few tips to help you make your business more successful than ever.
1. Track and Manage Business Expenses
As a freelance worker, many of the business expenses you pay are tax deductible, which can reduce your taxable income to lower your ultimate tax liability. Common deductions available to freelancers include travel, supplies, insurance, advertising, and utilities. Expenses that are part business and part personal, such as internet, can be partially deducted based on your business use.
To maximize your savings, it’s vital to maintain good records. Keep track of all business expenses with money management software like QuickBooks and Mint to ensure they are properly categorized.
2. Get the Right Insurance Coverage
You may not think your business has much risk, but anyone can be sued. Just as you wouldn’t drive without car insurance, you shouldn’t operate a business without insurance coverage. If a client is unhappy with your work or loses money, you miss an important deadline, or any other unforeseen scenario arises, your personal assets could be at risk. It’s essential to protect yourself from this risk by choosing the right type of business coverage.
There are several types of insurance options that may fit for a remote worker or freelancer, including property insurance, which covers property like inventory and computer equipment, and general liability insurance, which pays for damages, court costs, and legal fees if you are sued.
3. Start Planning for Retirement
Freelancers often fall behind on retirement savings without an employer-sponsored 401(k). You can qualify for several types of retirement plans to build your nest egg and potentially save you money on taxes today. A common option is a SEP-IRA, which is designed for self-employed people. You can also start a solo 401(k), an option when you work for yourself without employees.
Don’t make the mistake of assuming saving is optional. The more your income fluctuates as a freelancer, the more important it is to save for yourself.
4. Estimate Your Tax Payments
As a freelancer, you likely do not have taxes withheld from your earnings automatically. The IRS may require you to make estimated tax payments. Even if you are not required to do so, it’s a good idea because it can reduce or eliminate a large tax bill in April. Start by estimating the income you expect to receive before accounting for tax credits and deductions you believe you will claim.
In general, you will need to make estimated tax payments four times per year. You can use last year’s return as a guideline for estimating what you will owe. If you miss a payment, you can catch up by paying extra on the next payment to avoid a surprise later.
5. Get Help from a Financial Planner
Financial planning is an important element in the success of a business. If you have difficulty increasing cash flow or want help reducing your tax liability, a financial planner can help. At the very least, you may want to work with a professional to set up a system to better track your income and expenses or streamline your business to improve your bottom line.
If you’re looking for a trusted financial advisor, reach out to Jan Gleisner. Financial planning is important not just for freelancers, but for all types of businesses. Get in touch today with your financial questions.