At the end of 2012, I left my full-time teaching job and position I had held for almost 15 years to go freelance. I had been taking small, low paying video and photo jobs on the side for years, which technically made me a sole proprietor for some time, but it wasn't until this past year where I realized just how complicated being a freelancer could be. If you're thinking about going freelance, here's what I learned:
1. Accounting Is Really Important
I've never been a big fan of numbers, especially the number "8" when followed by "MM" and starring Nicolas Cage. All Nicolas Cage movies suck, but he earned a special place in hell for this film. His punishment: Watch 8MM on a loop for eternity.
Now back to the number thing. In 2013, I read a whole lot of books about taxes and accounting. As a sole proprietor, not only are you on the hook for the normal state and federal taxes, but you also pay a self-employment tax of 15%. If you do the math, it means that you are giving up roughly 43% of your income, however, you can deduct half of that self-employment tax.
*Please note, that your actual tax rate will depend on your tax bracket, directly related to how much you and your spouse earn.
I freelance as an Independent Contractor for multiple companies, meaning I'm not on their payroll, but I'm paid as a contractor for my work. No taxes are taken from the check they cut me. Instead, it's taken at the end of the year when I file. This makes keeping track of my income and expenditures very important.
2. You Need to Understand Tax Deductions
No one wants to have to cut the government a huge check at tax time. Getting to know all the big and small tax deductions you can take will be a big advantage come April 15th.
Some of the most important ones for me relate to travel, office space, and business expenses. I keep a small travel log in my car, and record my start and end mileage on all business trips, which for me include hitting the road for on-location shoots and trips to the good 'ol bank.
If you work from your house, knowing what percentage you use for your business will determine how much you can write off.
*Please note that technically, the government only wants you to include the space in your house that is used solely for business. That means the corner of my office with my Ben Affleck punching bag cannot be deducted.
I also keep a running list of all my expenses by category including equipment, business meals, etc.
3. You Gotta Keep It SEPARATED
If you're a sole proprietor, you need to keep your personal and business finances separate. Easier said than done. If you start dipping into your business money to pay for those 50 copies of Ghost Rider you want to give out as a gag gift at Christmas time, you're going to run into accounting and tax problems. And really, those DVD's are just going to end up in the trash so it's not really worth the laughs.
4. So Many Distractions
There's no boss to look over your shoulder and hold you accountable for your time. You are the boss and you're probably the worst person to keep account of yourself.
"No way, man. If I become a freelancer I can totally stay focused all day so I can make an ass-load of cash and live the good life."
Nope. There are days when the TV, Youtube/Vimeo, videogames, the dogs, and other things will distract you and you will not get anything done. If you don't believe me, ask a freelancer in your life.
Your punishment for not believing me: Watch Snake Eyes once. Just once. Any more than that could lead to blindness or severe stupidity.
5. There's No Team In You
Not sure if that makes any sense, but the truth is, you're probably going it alone. Hopefully you can handle extra work, extra pressure, and not miss other people too much. If you get swamped with work, or you're having trouble coming up with a solution to a problem, you'll usually have to work through it yourself. But I have faith in you.
*I'm not an expert on taxes or business so some or all of the above info may not apply to your business situation or geographic region. Consult your accountant for better info.