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Freelancers: The Pros and Cons, Tax Tips, and Real-Life Examples

Last updated 03/20/2024 by

SuperMoney Team
Freelancers work on a per-job or per-task basis for a variety of clients, giving you the freedom to work from anywhere and on your own terms. The rise of technology has made it easier than ever for skilled individuals to work independently in various industries like film, art, design, copywriting, website development, and more. Freelancing comes with unique tax considerations as freelancers are considered self-employed individuals and must pay both income and self-employment taxes.
Are you tired of working the 9-to-5? Do you crave the freedom to work on your own terms? If so, you might consider becoming a freelancer. As a freelancer, you’re essentially your own boss, working on a per-job or per-task basis for a variety of clients. Unlike traditional employees, you’re not tied to one company and can work for multiple clients at the same time.

Overview of freelancers

When it comes to freelancers, they’re often seen as independent workers who have the flexibility to work full-time or part-time, depending on their schedules. As independent contractors, freelancers will typically have a signed contract outlining the work to be done and will agree to a predetermined fee based on the time and effort required to complete the task. This fee could be a flat fee or based on the amount of time or work involved, such as an hourly, daily, or per-project rate.
Freelancers can be found across a wide range of industries, particularly those that require creative, skilled, or service-based work. You might find freelancers working in fields like film, art, design, editing, copywriting, proofreading, media, marketing, music, acting, journalism, video editing and production, illustration, tourism, consulting, website development, computer programming, event planning, photography, language translation, tutoring, catering, and more. The list is endless, and the rise of technology and the internet has made it easier than ever for skilled individuals to work independently in a wide range of fields.

Freelancers and taxes

Being a freelancer comes with its own unique tax considerations. The IRS considers freelancers to be self-employed individuals, which means they are responsible for paying income taxes and self-employment taxes. Unlike employees of a company, freelancers don’t have their taxes withheld by their clients. Instead, they must estimate their taxes and make quarterly payments. In addition to income tax, freelancers are also subject to self-employment tax, which covers Social Security and Medicare contributions.
Freelancers are considered self-employed by the IRS and are responsible for paying both the employer and employee portions of the Social Security tax. This means that they have to pay a total of 12.4% in Social Security tax (6.2% for the employer and 6.2% for the employee).
Freelancers who earn $400 or more in a tax year are subject to the self-employment tax, which has two components: Social Security and Medicare. The Social Security tax applies only to the first $147,000 of income earned in 2022 ($160,200 in 2023). The Medicare tax rate for both entities is 1.45%, but the self-employed worker pays 2.9%. Therefore, the total self-employment tax rate for a freelancer is 15.3%.
Freelancers can claim tax deductions for their business expenses that are considered ordinary and necessary for their business operations, according to the IRS. This means they cannot claim deductions for expenses that are not related to their business. Some deductible expenses include home office expenses like rent and utilities, travel expenses, client entertainment costs, professional development expenses, and more.
As independent contractors, freelancers are responsible for paying estimated income taxes to the IRS on a quarterly basis since they don’t have taxes withheld from their paychecks. Instead of W-2 forms, freelancers receive 1099-MISC forms from each client they worked for during the tax year. These forms don’t typically include any tax withholdings, making it the freelancer’s responsibility to pay their taxes.

Pros & cons of being a freelancer

Being a freelancer comes with many benefits such as the flexibility to work from home or other non-traditional workspaces, the ability to create a schedule that fits your needs, and a better work-life balance. Freelancing can also be a lifeline for those who have been laid off, helping to reduce overall unemployment rates.
However, there are also some downsides to consider, including uncertainty about future income and job stability, as well as challenges in finding consistent work. Freelancers also miss out on traditional employer benefits such as health insurance and retirement plans and may earn lower per-hour rates compared to salaried employees. It’s important to note that freelancers are generally not eligible for unemployment insurance, except for those who qualified for Pandemic Unemployment Assistance (PUA) during the COVID-19 pandemic.

Types of freelancers

A journalist who chooses their own stories and sells their articles to the highest bidder would be an example of a freelancer. The same can be said of a web designer who creates a beautiful website for a client and then moves on to the next project. These are examples of freelancers – independent workers who offer their services to clients on a project-by-project basis. From writing and designing to programming and consulting, freelancers come in all shapes and sizes and can be found in virtually every industry.
Freelancers can work in a variety of different fields including:
  • Writing, editing, & proofreading.
  • Graphic design & illustration.
  • Marketing, media, & PR.
  • Photography & videography.
  • Website design.
  • Software programming & beta testing.
  • Financial support (e.g. tax preparation).
  • Sales.
  • Data entry.
  • Gig work, which includes driving for rideshare platforms, food delivery, manual tasks, and care work, and is organized via online platforms and mobile apps.

Places to find freelance work

Freelancers can find work through a variety of platforms, both online and offline. Online marketplaces such as Upwork, Freelancer, and Fiverr provide a convenient way for freelancers to connect with potential clients, bid on projects, and showcase their portfolios. Networking through social media platforms like LinkedIn and joining industry-specific forums or Facebook groups can also open doors to job opportunities. Additionally, attending local meetups, industry conferences and joining professional associations can help freelancers establish connections and secure potential work through referrals and word-of-mouth recommendations.

Freelancing as a career

Embarking on a freelancing career is like being the conductor of your own professional symphony—where you play all the instruments. You’re the CEO, marketing guru, administrative whiz, and creative genius, all while sporting your favorite pair of pajama pants. With the freedom to choose your clients, working hours, and projects, freelancing is a thrilling roller coaster ride with its ups, downs, and occasional upside-down loops. So, buckle up and enjoy the adventure of navigating this brave new world where the boss is you, the watercooler conversations are with your cat, and the corporate ladder is replaced by a comfy bean bag chair.

Key takeaways

  • Freelancers are independent contractors who work on a per-job or per-task basis, typically for short-term projects.
  • Freelancing offers benefits like the freedom to work from home or non-traditional workspaces, a flexible work schedule, and a better work-life balance.
  • A web designer who creates a beautiful website for a client and then moves on to the next project is an example of a freelancer.
  • Freelancers do not typically receive employee benefits such as health insurance or retirement plans from their employers.
  • Gig workers can be categorized as freelancers as well.

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