Freelancers - any advice?

College Majors Visual Arts and Film Majors
1

<p>My daughter is graduating (BFA in GD) and has been offered a couple jobs - one is freelancing to replace a freelancer who worked at this company (40 hr week basically all year) but was just transferred to another dept. My daughter interned there last summer so they offered her the position. She’s not necessarily looking at this as a long term job (6 months minimum in her eyes). In any case, she knows the salary is higher than normal because she will incur more costs this way, but she is hoping someone (who freelances) can advise her on what all the extra expenses will be. She can live at home so she can save/pay off student loans.</p>

<p>She was told by friends that she will have to pay the employment tax (maybe about 15% of the salary) which is usually paid for by the employer in a normal employer/employee situation. What does this employment tax include (unemployment, disability, medicare, social security)? She had interned there lst year and was paid as an employee. Some of these things (UI/DI) appear to have been paid by her employer but she had ss tax and medicare tax withheld from her paycheck so I assume those expenses were “shared” with her company. Does that sound right?</p>

<p>She realizes she also will not receive paid time off (vacation/sick days), retirement contributions, or medical benefits (actually they do offer benefit plans but she wants better coverage so will need to look elsewhere).</p>

<p>In this economy, friends and family are complaining about their job situations because their companies are cutting retirment contributions (no 401K company contributions), lowering company contributions to medical benefits, and/or cutting paid leave (or forcing unpaid leave) so I’m not sure how good packages are today anyway for new hires.</p>

<p>So, is she missing any big expenses that pertain to freelancers/independent contractors? She will be paid through a consulting firm who withholds taxes for her (she did this over Thanksgiving break) so is familar with it.</p>

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<p>As a 1099 (vs W-2) employee, the major outflows are self-employment tax, income taxes, and medical insurance. Medical coverage for young, healthy people is not too onerous, especially if you go for catastrophic coverage; the higher the deductible, the cheaper the insurance. Self employment tax is paid with the income tax form, so you can consider these together.</p>

<p>Here’s how the self-employment tax works: Normally the employer pays about half of the social security/medicare/etc and the employee pays half. If you are self employed, you have to pay the employer half as well. BUT, and this is a big but, this is a business expense to you and can be deducted from your taxable income.</p>

<p>As a freelancer, other expenses may be deductible as well. Any driving to assignments (not commuting, unles you commute to several locations) is a business expense (55 cents per mile this past year), software you buy for your taxes is a business expense, any supplies you buy are business expenses, any professional organizations, and so on and so on. The trick is to deduct all the expenses you do have so that you pay those taxes on a smaller income.</p>

<p>The other things that will need to be done is to estimate out how much taxes you will owe at the end of the year and file quarterly payments.</p>

<p>Treat it like a real business and keep great records and it’ll be fine.</p>