Did you start 2012 with the goal of becoming a full-time freelance writer? For many people, the writing part of a writing business is the easy part. The business part - making a living and following the necessary tax rules - is harder.
Income & Taxes
To be a successful freelance writer, you need to make enough money to pay your taxes, save money, and cover your living expenses. You’ll pay the government sizable portion of your income – more than what you pay when you’re employed by someone else – and your after-tax income must be enough to live on or you’ll have problems.
Speaking of taxes, you’ll be responsible for paying Federal income tax, self-employment tax, and state income taxes. The clients you work for won’t withhold taxes from your pay. Instead, it’s your responsibility to send quarterly estimated taxes to the government. Then, every year, you or your accountant will prepare and file your tax return.
You’ll have to keep good records, not only so you know your income and expenses, but also so it’s easier to complete your tax return. Some clients may send you a Form 1099-C at the beginning of each year. But, if you don’t get this form, you’re still responsible for claiming the income on your taxes. On the bright side, you can also take deductions for your business expenses, e.g. child care expenses and web hosting.
Many clients, especially those who expect to pay you more than $600 in a year, will ask for a completed W-9 Form. The form basically asks for your name, address, tax ID number and signature. You can apply for an Employer Identification Number (EIN) from the IRS for this purpose. The alternative is to use your social security number.
If you’ve been writing part-time, you may have already set up a rate schedule and decided on your payment methods. For brand new writers, this should be done before you start doing business. You’ll have to decide how much you’re going to charge for your writing services. You can charge per word, per hour, or per job, but make sure you’re consistent from one job to the next. Don’t arbitrarily come up with figures for a job and don’t let clients tell you what you should charge.
You also have to decide how you’re going to get paid. I like Paypal because it’s quick and easy, but there are fees and a new 1099-K Form to worry about. You can also get paid via bank transfer, check, money order, or cash.
Finally, decide when you want your clients to pay you – before, during, or after the job, or all three? Survey several writers and you’ll find that they have different timing and some may use different methods for different clients.
When you're ready to be paid, send your clients an invoice to let them know how much to pay you and when you should be paid. Save a copy of your invoices and payment receipts for record-keeping and tax preparation.
From the beginning, develop a good system for paying yourself. I like to accumulate my freelance income in one account and pay myself a set amount each month. Keep in mind, however, that you owe taxes on everything you earn, not just the amount you allocate for monthly living expenses.
The following are some expenses you’ll have to pay more attention to once you’re a full-time freelance writer: health insurance, retirement, marketing, web hosting, office equipment, in addition to your normal living expenses, e.g. rent/mortgage, utilities, child care, etc. None of these are easy tasks, but they're all vital pieces of a long-lasting freelance writing career.