3 Practical Things You Need To Do As A Self-Employed Professional

3 Practical Things You Need to Do as a Self-Employed Professional

According to SmallBizGenius.net, US freelancers added a whopping $1.21 trillion to the economy in 2020. Plus, during the pandemic, 12% of Americans picked up freelancing jobs.

These numbers highlight just how fast the world of self-employment is growing, especially as the pandemic changes how we all work.

Some people started freelancing to get through the tough times brought by the pandemic, while others did it for the freedom and variety it offers in their work life.

But no doubt, freelancing comes with its own set of challenges due to its unpredictable nature.

That’s why we’re here to share some simple tips to help you manage your freelance work better.

Calculate your personal salary

If you’re self-employed, figuring out how much to charge can be tricky. Start by looking up what people in similar jobs get paid and what other self-employed folks in your area charge.

Don’t forget to add up your business costs and think about how much your work is worth. With this info, you can find a fair price for your services.

Pick a set amount to pay yourself so you don’t take too much money from your business. This money could be used to run and grow your business instead.

Our article, ‘What Should Your Entrepreneurship Salary Be,’ talks about how business owners can figure out how much to pay themselves.

The advice given can also help people who work for themselves. For example, there’s something called the owner’s draw method.

This means you keep track of all your business costs and what you usually make.

Then, you figure out how much money you can take out for yourself from your business’s profits without causing any trouble.

This way, your business has enough money to keep running and growing.

Design your own benefits package

If you want to make sure you’re covered for life insurance and retirement savings, you need to put together your own benefits plan. A finance website, AskMoney.com, says that if you work for yourself, you can lower your taxes by counting the money you spend on health, dental, and long-term care insurance.

So, the money you spend on insurance can help you pay less in taxes. Plus, think about getting dental and vision insurance too, to avoid paying a lot out of your pocket later on.

On top of your health insurance, you will want to sign up for a retirement plan. Self-employed professionals can opt for a solo 401(k) plan, which is an individual retirement savings vehicle designed for small business owners without employees.

Solo 401(k) plans have higher contribution limits than employee 401(k) plans, as you play the role of both employer and employee.

In addition, because you no longer have to share your 401(k) contribution responsibilities with your employer, you have the freedom to choose between a traditional or Roth 401(k).

Stay on top of taxes

As a self-employed professional, you’re in charge of setting aside some of your earnings for future tax payments.

And according to the IRS, self-employed professionals are required to pay taxes if their net earnings exceed $400.

Besides income tax, they also need to pay self-employment tax (SE tax). This tax is their part of Medicare and Social Security payments. In 2020, the SE tax rate is 15.3%, with 12.4% going to social security and 2.9% to Medicare.

Apart from income tax, they must also pay a self-employment tax (SE tax). This tax covers their contributions to Medicare and Social Security. In 2020, the SE tax is 15.3%, with 12.4% for Social Security and 2.9% for Medicare.

Collect these and your other earning invoices, then add up all the money listed. This gives you your total income. Next, take away your total spending from your total income to see if you made a profit or a loss. Finally, use this info to fill out your 1040 or other tax forms.

Gather these and your other earning papers, then add up all the money shown. This tells you how much you made.

Next, subtract what you spent from what you made to see if you earned more money than you spent or not. Finally, use this information to complete your 1040 or other tax forms.

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