It’s almost cruel: As soon as the vacation is over, it’s time to start thinking about the finances of the first trimester. And while winter is perhaps the most wonderful time of the year (… maybe), it is also one of the busiest and most expensive.
Tax season is stressful for everyone, but especially for freelance writers, whose finances can be extremely difficult.
Did you keep track of your terms? What about the self-employment tax? Maybe you have a “normal job” as a side gig, which means you have to worry about the W-2s as well. And how is all this “saving for retirement” stuff going?
How Freelancers Can Make Tax Time Less Stressful
Don’t worry, frantic freelance writer! Because while, yes, tax time will require some extra fuss, lining up your ducks early in the year can keep you cruising smoothly afterwards.
Here are five smart financial steps freelancers need to take before the cruelest month arrives.
1. Maximize IRA contributions
You may not have an employer sponsored 401 (k), but you are saving for retirement, right?
Whether you choose a Roth or a traditional account, an IRA is a great way to create that egg. But you have to put money in if you want to get money out of it!
Since IRAs carry contribution limits, reaching the maximum is a relatively attainable goal for many of us, and it is worth saving and saving. The magic of compound interest can turn even a small savings into a large retirement fund, as long as you give it time to grow.
For example, $ 6,000 per year equates to just over $ 125 per week, which equates to what you could spend in bars and restaurants… and in 30 years with a growth rate of 6% you would have about half a million dollars. (Source: this retirement calculator.)
You have until April 15 of each calendar year to make contributions for taxes from previous years, so even if the vacation is exhausted, you still have time to make it happen.
2. While you’re at it, check your financial portfolio
This IRA, or any other investment account you may have, will only grow if your assets are properly allocated. And even if we don’t suggest that you do day trading (unless you really know what you’re doing), it’s a good idea to take a look at your holdings each year.
Malik S. Lee, Certified Financial Planner and Founder of Atlanta Felton & Peel Wealth Management, warns average investors not to gamble too often with their portfolios, especially given media sensationalism. “You don’t want to react to major risks,” he says. But there are some situations where updates and changes are needed.
We are certainly not investment experts, so we’ll leave it to you to do that research. That said, if you have the budget for it, hiring a qualified financial advisor can be a great way to take the guesswork out of your long-term financial strategy.
3. Review last year’s income and set goals for this year.
New year, new you, new opportunities increase your income. But first, take a second to review your performance last year – that way, you’ll have a better context from which to set those goals. (Plus the chance to give yourself a well-earned pat on the back!)
Keeping detailed records is imperative for independent contractors, which means figuring out your total income shouldn’t be too difficult. If you’re struggling with a complicated system of ad hoc Google doc spreadsheets, or worse, paper invoices (* thrill *), consider upgrading to Freshbooks, which will help you in this step as well as in the next.
By the way, don’t underestimate the power of writing down your goals. It is scientifically proven to improve your chances of actually achieving your goals, and it’s also a great way to track your long-term growth. Nothing like going back on the goals you set for yourself three years ago and finding that they only represent a fraction of your current income!
4. Enter the details of the money
You checked out how much you made last year and wrote a big but achievable goal for it.
So how are you going to get there?
One of the best ways to make more money as a freelance writer is to be a little hard on your clients. After all, not all paid gigs are created the same – and it’s worth spending more energy on those that deliver better returns on your time and energy investments.
So take a cold January afternoon to go over your client list (and / or your income sources in general) so you can decide who and what to prioritize. If you are looking for a great model to work with, here is an example income breakdown by Jessica Lawlor, Editor-in-Chief of The Write Life.
5. Don’t forget about self-employment taxes
There’s no doubt this one is already on your to-do list, but it bears repeating: the estimated quarterly taxes are due April 15, and given the likely complexity of your administrative situation, you you will probably want to drop them off a bit earlier.
Keep in mind that you’ll be paying both income tax in your designated bracket, as well as self-employment tax – specifically, uh, fun an easy-to-forget independent supplement. For most freelancers, it’s a good idea to find an accountant… And considering how busy she is about to be, you might as well plan this date soon.
Happy New Year, writers. May the coming year be prosperous and your paperwork as simple as possible!
Resource 👉 Need more detailed advice on how to approach money management as a freelance writer? This ebook covers you: The Money Guide for Freelance Writers.
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This is an updated version of a story that was posted previously. We update our articles as often as possible to make sure that they are useful for our readers.