Freelance Reflections 6/27: Freelancing for Free? Yes or No?

Recently I was approached to do a volunteer freelance project for a small charity trying to update and redesign their website.  I accepted and offered to do it completely for free. WHAT?! I know. Free. People said I was crazy, that I should have charged a nominal fee. As a first year freelancer I was immediately conflicted about this decision after the initial response I’d received from others about it. 

It got me thinking about how others might feel when asked to complete a project for nothing. After all, the adage, “Time is Money” is definitely true for freelancers. The more we work the more make and the sooner we can increase our rates as we collect more and more experience. 

In the end I stuck to my guns and completed the project for free and came to the conclusion that really it’s no one’s business if I offer to lend my skills out to a cause that I believe in for nothing. In fact, I did get paid but not in the way that most people expected. In personal satisfaction.

I know, I can’t live off of satisfaction and I wouldn’t recommend anyone offering to volunteer their services if they don’t have enough income to take care of themselves but once I’d finished the project I felt great. So often in freelancing we’re called to complete tasks for clients and we don’t really get to pick and choose who we write for and what we write. This charity happened to be something very personal to me and the opportunity to help them and make a difference is something I don’t come across often. 

Also, the gratitude expressed by the Director of the charity was extremely motivating. They were so grateful for the help, they gave me a fantastic testimonial, and I know for a fact that they will be getting in touch with me in the future for other work and recommending me to people as well. Good press is always good to get, and when it comes with feeling like a hero it’s hard to miss the money I would have made had I charged them. This will open doors to other opportunities down the line and establish professional relationships that will surely help my business grow. 

So Freelancing for Free? I say yes but depending on the project and what you’re being asked to do. Also setting up a boundary for revisions is essential. My maximum is three for paying clients but for pro bono assignments I would probably only allow two rounds of free revisions. After that I say my hourly rate kicks in which is a good way to keep pro bono assignments from dragging on for forever.

What do we think? Have you had any bad or good freelancing projects where you worked pro bono? 

What First Year Freelancers Don’t Know About Taxes

So maybe you’ve started an LLC, or a Sole Proprietorship or some other business entity (if you haven’t done this yet as a freelancer I highly recommend that you do, and more on this later). You’ve heard tales of massive deductions, and rumors that “everything is a business write off” PLUG YOUR EARS RIGHT NOW.  Stop listening to the crazy.

First of all, the IRS will know the receipt for fuzzy bunny slippers you bought are definitely NOT a business expense so let’s be clear about this from the beginning. You want to start off and continue to be honest about your business expenses from the very beginning. Why? Because it’s simpler that way come tax time. Imagine that your business money and your personal money are in two completely separate dimensions. If you want some spending cash from all that profit you’re making write yourself a paycheck and deposit it into your personal bank account. Trust me, your accountant will thank you, and you will thank you if you get audited.

Now. Deductions.  I am a writer (well, duh, Rez) and I know NOTHING about taxes other than I need to do them or end up like Al Capone (yes, famous kick ass bootlegger and scary American gangster booked for the wimpiest crime ever). I do know that deductions are out there the questions are, What can I deduct? How much can I deduct? How are my business taxes calculated? Since I can’t answer this myself I went to someone who could.  My accountant.

As a first time business owner make sure you make friends with your accountant, because they’ll  be the people who’ve got your back come tax time and they are a great source for answering tough questions like this.  So after trading a few emails back and forth here’s the upshot:

 

How much of what I make as a freelancer is subject to income tax?

Short answer, ALL of what you make is subject to income tax, which is dependent not only on the federal rates but also the state rates as well. So factor that in before you make any purchases. A lot of companies meet quarterly to pay their taxes four times a year instead of doing it all in one shot which is a lot easier for freelancers since it fractures up paying those taxes into manageable chunks. It also shows you how you’re progressing since for many freelancers in the first year you’re not going to know how you’ll fall profit wise.

Are there any additional taxes I should know about?

Well if you make over $400 as a freelancer you’ll also be responsible for paying a self-employment tax which currently as of 2014 is 15.3%.

So, how do deductions work exactly?

The answer is a bit back to front but bear with me. Net earnings are the total earnings minus allowable deductions. This is why keeping a separate checkbook is so important.  If you don’t know what an allowable deduction is then ask your accountant otherwise you could be making purchases and then still be responsible for paying taxes on top of that which would be a really nasty surprise.

What are some deductions I can definitely take?

If you work from home, you can take an estimated portion of your cell phone and/or internet connection costs as being related to your freelancing business, and if you need to use your car for anything related to business keep track of your miles.  Office supplies, paper, ink, business cards, any advertising you do for your business are all deductible. If you mail anything business related, the postage is an allowable deduction.

If you buy a new computer for your business, then it is deductible but over FIVE years so you can only claim one fifth of what you spend for this first year.

Many people think that checks to themselves are deductible but they ARE NOT.

What about Insurance deductions?

If you carry liability insurance for this it’s deductible. If you have your own health insurance it will be partially deductible whether or not you have a profit or loss at the end of the year.

So there you have it!  And if you need more information about this definitely check out the IRS website for more information.

 

 

IRS Website for Small Businesses and Self Employed