5 Tax Mistakes Freelancers Need to Stop Making

tax mistake

Freelancing is a big responsibility and you should be proud to be have taken it. But along with also comes a lot of additional concerns that many freelancers fail to address. One such concern is your future financial security or a retirement plan.  

In a 9 to 5 job, your employer does all the taxation and provides a retirement saving plan like 401 k. As a proactive freelancer, you have to take care of these things all by yourself.  

Here are the 5 mistakes freelancers need to stop making to achieve complete financial stability and flexibility.

1) Mixing your personal and business finances

Most freelancers don’t consider freelancing as a serious business. Hence they fail to correctly regulate their income. They use their business account to buy personal things and vice versa. This can cause a lot of problems when assessing tax at the end of the financial year. In addition, they never come to know about their business expenses. Mixing your personal and business finances is not only a tax mistake but also a poor way to run a business.

2) Not saving for retirement

retirement

Retirement plans and saving money for the future have always been linked with a stable 9 to 5 job. Freelancers don’t consider themselves in this category so they never think about saving money for the future. It is true that freelancing is a small business and not a job. But saving money is one of the very basic financial lessons that everyone show know.

3) Not paying self-employment tax

The employer is supposed to notify the IRS of the amount of tax owed by his/her employees. But since you are self-employed, it is your obligation to report your income to the IRS. And you can do this by paying self-employment tax. Usually, the self-employment-tax consists of Social Security and Medicare. And by making contributions to both you can cut your overall tax. For a freelancer, not paying self-employment tax will result in a hefty penalty and high tax on gross income.

4) Neglecting health care contributions

Health care

You probably would love to know that, as a freelancer or a self-employed person, you are eligible to deduct premiums for health care. That being said, you still have to apply for a healthcare plan and pay the premiums initially. The IRS will adjust the healthcare premiums that you paid by lowering your taxable income. [1]

5) Not having an emergency fund

It’s a great feeling to be self-employed as it provided freedom and endless opportunities, but if the unexpected should happen, who will pay for your expenses? In life, nothing is certain and in crisis situations of need, you will someone to back you up financially. This is where emergency funds come in play. Not having an emergency fund is a huge tax mistake.

Conclusion

Lastly, to help manage your finances, you can use accounting software like QuickBooks Self-Employed. With QuickBooks Self-Employed, you can also collaborate with your accountant or bookkeeper–in case you decide to hire one.    


[1] “Emergency Fund Definition – Investopedia.” Accessed May 29, 2019. https://www.investopedia.com/terms/e/emergency_fund.asp.

Where to Get Funding for Small Women Businesses

Business identityDespite the need for skills and determination to start a small business, there is a need for money. Competitive business environment makes it harder. Women being the fair gender face more challenges due to market constraints. Such constraints include limited access to information and bias.

In the U.S women own 39% of all companies. Although the numbers seem good there is the need for improvement towards reducing the gap between male and female-owned businesses.

Five best sources of loans for small women businesses

  • Local female-centered group loans within your region – women-owned businesses have overwhelming support from many states. Information such as cash flow projections, income tax, credit authorization, and financial statements are required. Though the loans might be small depending on location, the most significant advantage is adequate time to pay back.
  • Peer-to-peer business loans. Lending club is among the platforms of peer to peer lending. The lenders act as a connection between investors and clients in need of money. This form of loans has no restrictions regarding spending. The loans have no restrictions on use and are offered in flexible terms. The business though has to meet some revenue score to acquire the loans.
  • Small business administration loans. The loans have meager interest rates and are offered to small businesses whose credit score can’t qualify for other investments. These loans require collateral and a healthy business plan. The most significant disadvantage is the time needed to secure the loan as well as the difficulty in acquiring it.
  • Traditional banking institutions loans. These include banks and insurance agencies. Loans from these institutions have a constant interest rate. Research has shown that banks usually process long for businesses to reduce the motivation for small businesses likely to fail. For this kind of loan, the company must provide collateral such as building, land or vehicles.

The above discussed are the most accessible and reliable channels for women loans to start a business. Other channels include bootstrapping, invoice factoring and selling business equity to potential investors. This help women businesses which don’t have enough revenue or collaterals to secure loans from banks.

Why is it hard for small women businesses to get loans?

  • Small community finance institutions have vanished. More prominent institutions have submerged the smaller community banks. These big banks are not willing to give small loans to these women businesses due to high risks. This hinders the growth of potential companies owned by women.
  • Modern business is more of service provision oriented. These businesses lack the criteria such as collaterals required by banks to give loans.
  • Venture capital is only concerned with companies with relatively high potential to grow.

Women being minority groups face a more significant challenge in acquiring financial support for businesses. The founder of CCVRS, INC., Craig Lambert ascertains that a company can only be successful if there is some risk involved. There is a need to reduce gender biases to secure women loans to start a business venture.