Beginning of My Freelance Journey

Laptop

Throughout my years living in New York City, I’ve been doing various Side Hustles – ranging from babysitting to tutoring to tech support to writing – in order to pay my bills and eat.

As of end of 2018, I’ve come to the place in my Side Hustle Life where I should begin figuring out how Self-Employment works. Things like 1099s, retirement accounts, and paying quarterly taxes.

There are things I haven’t even began touching yet, like opening a work-specific credit card, because so far, my expenses have been very low. But doing my 2018 taxes, I can see how tracking a lot of things can help me with lowering my tax burdens for 2019.

I don’t know if I’m doing any of this correctly, or if I’m going to end up being audited. But hopefully as I learn things, I’ll keep reporting on them, and we’ll see next year if what I did worked out!

Few things I’m keeping in mind this year:

Creating Separate Savings Accounts

I created 3 savings accounts in a high-interest online savings bank: Freelance Income, i401k, and Taxes. I put in 20% to i401k account, 30% into taxes, and 50% into the Freelance Income account.

Hopefully these estimations are close enough, and I won’t have to scramble to find money to pay the government!

i401k

I have been looking into i401k (Individual 401 (k)) for a few months, and while I gave up for 2018 since I only made $1,000, and I felt like it wasn’t worth the stress and work to open one in time, since I am slated to bring in at least $7,000 in taxable 1099 income for 2019, I want to open an i401k account.

Since I already have 2 other accounts in Vanguard, I’m highly considering opening the i401k account in Vanguard as well.

Since I already max out my 401k from my day job, I can only put money into the “employer contribution” “slot,” which will probably be around 20%, according to Oblivious Investor’s Solo 401(k) Contribution Calculator.

Quarterly Taxes

I learned about Quarterly Taxes for Self Employment last month, and of course, I didn’t pay it for Q4 last year (when I received the check). So I guess I might owe a penalty for it when I’m doing my 2018 taxes? Who knows.

This year, I’ll hopefully be on top of it. There is a Self-Employed Individuals Tax Center page by the IRS, but I might just get something like Quickbooks to help me keep track of everything… Since I already have so much going on, I want to lessen my administrative load as much as possible.

Keep Receipts & Track Business Expenses

It doesn’t take much to run my “businesses,” but while doing my 2018 taxes, I saw that there are a lot of things that qualify as “business expenses.” I’m going to have to keep a better eye on things that could qualify as deductions so I can make most of my hustle.

One such that I’m looking into is possibility of buying a new laptop. Currently, I don’t have a functional personal laptop, so if I change jobs, or if my freelance works becomes more labor and file-storage intensive, I might just go ahead and buy myself my own Macbook Pro. Yeah, yeah. Take my Personal Finance Blogger badge away. I like shiny things. 😉

I have spreadsheets of incomes and expenses, and hopefully will keep them updated throughout the year.

Are You a Seasoned Freelancer?

Do you have any tips or suggestions for us Freelancing Newbies? Any hard-learned lessons or pitfalls to avoid? Let me know, because I totally feel like I’m going into a dark cave!

Comments

  1. SC | MissFunctional Money

    I’ve been keeping my “i” (sorry) on an i401k — not needed for me yet, but I like to know what my options are if I can take on freelance work! I have a lotttt to learn about that whole world of self-employment, though, and it scares me.

    I love your writing style, by the way, and am eager to follow along on your journey 🙂 Cheers!

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      Author
      Zero

      I see what you did there!! LOL. I don’t think I “Need” it yet because my side hustle income is small, but I do regret not starting a 401k and putting more thought into it when I first got it 3 years ago, so I’ve been looking into it. It’s all so confusing and scary to me, so I’m really hoping it doesn’t backfire and make me wish I just paid the taxes! LOL. I wish there’s like a definitive guide!!!

  2. Hannah

    Just as an FYI, you can max a SEP-IRA and a company provided 401k in the same year.

    As far as savings go, 30% is a little light. Remember 15.3% for both sides of FICA, plus Federal, State and Local taxes.

    I’ve got three kids, overwithheld from my husband’s job, paid 35% of gross towards taxes and I’m only walking away with a small refund once we net out what we owe to our state(s).

    Of course, with only $1,000 in 2018, you should be able to find quite a few write offs (cell phone, internet, etc.).

    Unfortunately, you will owe interest on your late taxes (6.25% per year), but as long as you paid more in 2018 than 2017, you’re probably good on penalties. The IRS assumes that you earn evenly throughout the year (ha!), so it’s good to front load estimated tax payments when possible.

    Good luck!

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      Zero

      Omg yikes! I’ve been looking at 30% and going “Man at what point is working and earning not even worth it”! But even that might be enough? Jeebus. I also live in NYC, so the taxes are probably phenomenal here too. I wonder if because I’m in NYC, it’s better to have an LLC… I’ve no idea! :/ Bahh taxessssss.

      And yeah I find that assumption hilarious as well. Clearly no one making the laws has ever worked freelance! LOL.

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