Financial Tips for Freelancers from a CPA
The freelance economy is growing at a rapid rate, and the growth is forecasted to continue as technology creates more opportunities to work remotely than ever before. From devices, apps, and other personal technology, individuals have many options to choose from when it comes to work. We are now able to communicate with one another from virtually anywhere. There are also platforms that match companies with talent, so skilled freelancers are able to more easily find jobs in their chosen fields.
Freelancers have to stay on top of their business constantly, so many of them do not have time to deal with the accounting issues that face their business. As someone who is self-employed, you no longer have an employer who takes care of your withholdings. Not only do you need to account for federal income taxes, you must also account for the employee and employer halves of Social Security and Medicare. The tax rate after combining these liabilities can be alarming, and it helps to have a CPA to guide you along the way. A CPA should be able to catch your books up each quarter and calculate an estimated payment to cover these taxes so that you will not be penalized by the IRS at the end of the year.
You must also keep track of your expenses so that you can take full advantage of the deductions at tax time. Some freelancers that are just starting out might create a spreadsheet with different expense categories to keep track of everything. If you want the complete package so that you can fully understand everything going on in your business, I recommend a program like QuickBooks. QuickBooks will allow you to not only see your revenue and expenses, but also assets, liabilities, and your equity.
Being able to accurately view the full financial picture of your business has many benefits. You can now identify areas of your business that could be improved upon. You can also use it as an investment tool. You can even set up a retirement plan for your business based on your earnings. One of the best retirement plans for a freelancer is a SEP IRA. A freelancer can put money in the account based on the earnings of their business. You can usually put up to around 25% of your earnings into retirement. A CPA should be able to help you set up a retirement account so that you can take advantage of the tax savings moving forward.