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Money, Taxes and Contracts for Freelancers

Money, Taxes and Contracts for Freelancers

Michelle Taute

Don’t Make the IRS Angry

Here’s the biggest mistake I see new freelancers make: They don’t set aside enough—or any!—money to pay their tax bill. When you have a job, all those pesky tax dollars come right out of your paycheck before they hit your hands. But most freelancers receive all the money they earn and have to send the appropriate amount to the IRS. Ignore this harsh truth all year, and you can end up owing thousands you don’t have on April 15.

If at all possible, I recommend finding a good accountant. Ask around for one who deals with small businesses and solo-preneurs. He or she can help you figure out how much you’ll have to pay and when you should pay it. I send tax payments to the city, state and federal governments every quarter, and if I make more or less than I expect, I just call my accountant to adjust the amounts. Another good tip: Once you figure out roughly how much you may owe, escrow your tax money. Simply stick a percentage of every check into a separate savings account, so it’s there when your tax bill comes due.

Read It or Weep

In a perfect world, you’d have a lawyer review all your contracts before you signed them. But this rainbows and puppy dogs scenario would send many freelancers to the poor house. The alternative? For starters, read your contracts carefully, make sure you understand them and don’t be afraid to ask for changes. You’ll be better at this crucial step if you educate yourself about common contract issues. A good starting point: The AIGA Standard Standard Form of Agreement for Design Services.

I know what you’re thinking. Contracts are long and boring. There’s a reason I didn’t go to law school or shoot for an MBA. But before you sign on the dotted line, know that a contract can affect everything from when you get paid to whether or not you can use the finished piece in your portfolio. Those papers might also spell out what happens if there’s a lawsuit or even put limits on who you can work for in the future. So if you want to keep creating, you need to keep reading and managing your business, too.

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