Story by Hamsa Ramesha, originally published May 2010 on ArtBistro.
Cubicle life just isn’t for you, is it? You’re not alone. There are a lot of freelance artists out there — approximately 63 percent of artists work as freelancers.
Life as a freelancer sure sounds glamorous — the free time, the independence, and the flexibility are all yours for the taking. But there are also scary aspects too, like falling prey to procrastination, taking care of your own health insurance, filing for taxes, and making sure you actually get paid!
Freelancing is hard work, that’s for sure. But in return, you get to be your own boss. Considering becoming a freelancer full-time? Make sure you’ve covered these key areas:
Benefits
Health insurance? 401k? Worker’s compensation? You may get to work for yourself, but that means no employer-subsidized health plan for you. It’s your responsibility to handle all of the insurance concerns and employee benefits that a human resource professional would normally take care of. You may not have all the bells and whistles of a company health plan, but you do have some options:
Freelancers Union
Joining the Freelancers Union gets you access to a health insurance plan at a group rate. Your company gets health insurance at a cheaper rate because it buys it for all its employees. Similarly, freelancers can get health insurance at a discount rate by joining this group. This isn’t available in all states, so check the website for more information.
NASE (National Association for the Self-Employed)
Benefit plans through NASE come with an Association 105 Health Reimbursement Arrangement. This means all of your health insurance premiums and medical expenses (that are non-insured) are also 100% tax deductible.
Chamber of Commerce
Your local Chamber of Commerce often supports small businesses and freelancers in the area. Freelancers can make use of the CoC’s individual health insurance plans. Details vary, but you do have options if you go this route.
COBRA (Consolidated Omnibus Budget Reconciliation)
Cobra plans allow ex-employees to keep their company health benefits if they resign or are fired under most circumstances. Of course, you’ll have to pay the difference for whatever your employer previously covered, but it’s health insurance that works. Too pricey? Downgrade your plan to a level that you can afford Remember, Cobra has you covered for only 18 months after you leave the company, which makes this option a great start for beginning freelancers.
Industry-Specific
As with the Freelancers Union, look for industry-specific groups that offer health insurance plans at a discount. For example, there’s the National Writers Union for writers and the Washington Artists Health Insurance Project (WAHIP) for artists across all disciplines.
Getting Paid
The best thing about freelancing is creating your own schedule and working when you want to work. Unfortunately, sometimes that means you have to chase after that steady paycheck and be diligent about getting paid. As your freelance career grows, you may find it challenging to keep track of all your clients, projects, and schedules. One of the trickiest aspects is making sure you get paid in a timely manner. IOUs are not acceptable in the real world. That means billing your clients the right way, with a professional-looking invoice. There are many resources and templates online for creating invoices as an artist. If manual billing is too messy for you, consider investing in an invoicing software that keeps track of your projects and bills your clients for you.
Taxes
Unfortunately being a freelancer doesn’t mean you get to escape Uncle Sam. Taxes are forever. Your flexible lifestyle just makes computing those taxes a little more difficult. Attention to detail and meticulous record-keeping are vital skills for any successful freelancer.
Luckily, Uncle Sam is pretty generous to the self-employed. Look out for these tax breaks that are exclusively designed for you:
- Take note of any business-related expenses.This includes advertising (business cards), insurance, property rent, office expenses (you can even deduct for a home office if you calculate square footage with Form 8829), repairs, travel, supplies, utilities, etc. It’s amazing what you can count as an expense!
- Business Assets.Your office furniture, computer, website, are all considered business assets and can either be filed as regular expenses or as capital expenses.
Sounds like you can deduct pretty much everything, right? Be careful; if the IRS comes calling, you’d better have concrete proof of every cent you claim as an expense. Plus, there’s the Self-Employment Tax to worry about.
Self-Employment Tax
Normally, a portion of your paycheck is held back each month for taxes when you work for a company. As a freelancer, it’s all on you to set aside some money each month for the Self-Employment Tax. Typically, it’s 15.3 percent of your profits, including Social Security and Medicare taxes. Think that’s too much? Remember, full-time employees have companies who pay half of those taxes, or 7.25 percent.
Consider Becoming Your Own Business
There are additional tax benefits to running your own business, even if the only employer is you. By filing for a business license and tacking on that Incorporated logo, you’re showing the IRS how serious you are about being self-employed. Plus, you’re also officially separating your personal expenses from your business expense, which makes filing taxes easier for you.
More from ArtBistro:
6 Interview Must-Haves for Creative Freelancers
Avoiding Mistakes as a Graphic Design Freelancer
Your Guide to Freelancing Success
Photo by freeparking via Flickr.