First 30 Days Blog

28 oct

Transitioning to Self-Employment

JennaSmithA wise friend once told me that the paycheck is the end of ambition. But I wasn’t lacking motivation when I decided to pursue my dreams.

I am analytical and require a plan for everything I do. So the first thing I did was head over to the small Business Administration website to their advice on how to get started. This is what I found out I didn’t know:

· I didn’t realize my business plan would be so comprehensive, including demographics I wanted to target and detailing the organizational structure of my business.

· I underestimated the amount of capital I would need to start my blog.

· I had not thoroughly researched the technology available to me, and I found some small investments I could make to save me time and money in the long run.

Once you’ve decided what you want to do, and you’ve put some thought into a business plan, iron out the back-end so you can launch the right way.

Tax Concerns

The scariest part of my first year was taxes, but the IRS has a rule to help you figure out what you might owe. If your total estimated paid taxes is greater than $1000 you must pay quarterly taxes, so make sure you check the IRS website and get the dates those taxes are due.

Also, get a tax person.

It might seem 1040 EZ to get these forms filled out, but someone with experience in the industry can help you find deductions.

You’ll need to fill out a 1040, and use Schedule C to figure out what you might owe; then apply any self-employment taxes that are applicable in your state. These numbers will all differ based on your income bracket, whether you are married, and what kind of deductions you take.

Savings Accounts

For short term savings accounts, you can use your brick and mortar bank but an online savings account may save you more money. You probably should not transition all banking online, but stashing a few thousand from your savings in an online account earning one percent interest is better than what most banks are offering.

Accessibility and liquidity are huge, so before you start investing, make sure you have a clear idea of how you want to grow your savings. A Roth IRA is a tax-safe method of retirement savings, while CDs can help grow your money in the short term. Read up these options at Schwab.com.

In the meantime, keep an account for your business taxes and payroll account.

Setting a Budget

One of the first lessons you need to learn is how to pay yourself. You should establish a regular payday and stick to it. Pay yourself the same every payday. That’s the hardest part.

From there, it’s all about keeping spreadsheets for things like household income versus spending. If you’re not good with numbers, let your spouse handle the bookkeeping.

Billing Clients

The next difficult aspect of freelancing is getting paid. In a perfect world, all clients would pay on time and you would never have to dispute charges. But this is not a perfect world and sometimes you will need to call people with friendly reminders. Keep your calls short, be subtle and remind the client that work was done and payment is expected.

Use PayPal to send invoices to clients, and utilize the built-in feature to remind customers when an invoice goes unpaid.

Providing Estimates

Providing quotes and estimates for your work will get easier with time. For beginners, review competitive market rates through sites like Glassdoor, Craigslist, Indeed and other job query sites.

Always detail what you are doing and how you are being paid for that time, and get an agreement in writing before you begin the project. Be careful that you do not hand the project over to your client before you are paid for the work, and always act with integrity if you want to keep your clients coming back for more.

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Posted by Jenna Smith on October 28th, 2013 in Career | 0 comments

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