By the Electric Literature staff
Working from home might seem like “living the dream,” but being a full-time freelance writer can be a nightmare if you don’t know how to manage your time and money. Reading your favorite writers doesn’t teach you how to do taxes, and nobody talks about word rates in writing classes, so many writers quickly feel lost and overwhelmed when it comes to managing their finances. Here’s a quick guide to staying alive in the world of writing-for-hire.
Salaried vs. Contracted Work
Doing taxes as a freelancer can be a lot more complicated than doing them when you have a regular full-time job with a W-2. If you’ve ever had a salaried job, you know that the first paycheck is always less than you expect, because most taxes are taken out when you’re paid. For contracted services, which includes freelance work, you’re responsible for paying taxes on your income after you’re paid. This can mean more money up front, but a larger tax burden at the end of the year (or quarter if you pay quarterly).
Every time you’re paid for freelance work by a new client, you’ll be asked to fill-out a W-9 form. W-9 forms provide the client—in this case, the publisher—with necessary information like your address, Social Security number, and legal name. Every client that pays you more than $600 in a single calendar year is required to provide you with a 1099 form, which reports the total compensation the client paid you for the year. Come tax time, you are responsible for reporting these earnings to the IRS and the state, not your client. Starting in tax year 2017, 1099s must be provided to freelancers (you) by January 31. But not all publishers are as informed and organized as you’ll be after reading this article, so if you earned more than $600 from anyone for freelance work and haven’t received a 1099 by February, be sure to follow up.
If you’re subsisting exclusively from freelance income, you should consider paying your taxes on a quarterly basis, rather than annually. It will help you keep track of your expenses and income better, and, of course, it helps prevent that awkward situation not a few authors have found themselves in at tax time when they do not have the cash on hand to pay all the taxes due for the year. Hiring a freelance tax advisor to help you with this is usually worth the fee and certainly worth it for your peace of mind. There are some big firms—like H&R Block—which do free consultations, but there are private accountants who are used to dealing with “creatives” and have expertise in applying the tax rules to freelancers. Whatever you do, it’s best to remember that asking for help upfront is always cheaper than dealing with the IRS when it comes knocking later.
Whether you’re self-employed or subsisting largely on freelance income, you should plan to “write off” business-related expenses on your taxes. To be eligible to deduct writing-related expenses, you must intend to write professionally and for your writing to be income-generating. If the IRS deems your writing a hobby, they will not allow the deductions. You can deduct expenses even if you had a bad year income-wise (e.g., an advance that all arrived in the prior calendar year), and the IRS will allow it, as long as you can show writing income in past or subsequent years. If your writing is income-generating, or you honestly expect it to be in the next year or so, then you should start keeping track of the kinds of writing-related expenses you can write off.
Write-offs, or deductions, can include large expenses, such as a computer, and smaller ones, such as office supplies or lunch with an editor. If you write about film, television, or books, purchases of those kinds of media—even subscriptions to streaming sites like Netflix, digital magazines, or databases—can be considered work-related expenses. If you work from home, you can even write off a portion of your rent or, if you own your home, a portion of your mortgage interest and real estate taxes. This can be a little tricky, but the best method is to calculate what percentage of your rent or mortgage interest and taxes goes toward your home office, based on square footage. If you don’t have a separate space for your office, you can still take a portion of your home as your workspace, but be judicious.
When applying all of these deductions to your tax return, err on the side of caution, and, preferably, hire a professional. Some of these rules can get quite complicated, so if you are proceeding without professional help make sure to study them thoroughly. The rent deduction is an estimate, which means it should be conservative. While claiming your expenses as deductions is completely legitimate and essential—since you are running your own business—claiming suspiciously high amounts can trigger an audit.
In order to keep track of work-related expenses throughout the year, you’ll need to save your receipts. Many freelancers choose to write notes on their receipts to remember what the expense was for: i.e. “Lunch with Bunny to discuss revisions.” But this system can get messy fast and lead to drawers bursting with unorganized bits of white paper. Now, there are a variety of receipt management apps that can help with tracking your expenses. These apps allow you to take a picture of the receipt, label it, and save it within the app—freeing up that drawer for your working manuscripts. And while it’s a good idea to save all your receipts, another way to further delineate your personal and business expenses is simply to use a dedicated bank account or credit card to make all your writing-related purchases. That way, if there’s no receipt, there’s still a record of the transaction with your bank. A lot of apps and software—including basic Quickbooks—will allow you to import a PDF of your bank or credit card statement. From there, different types of expenses can more easily and readily be separated.
Additionally, when it comes to taxes, it’s worth noting that freelancers pay additional social security and medicare taxes as compared to salaried employees. This is because if you work for an employer, you and your employer each pay half of your Social Security and Medicare taxes. If you’re self-employed, on the other hand, you pay the combined employee and employer amount.
Hourly vs. Flat or Word Rate
Be sure to set hourly, flat, and word rates for yourself that are realistic and will enable you to meet your financial goals. (Here’s a helpful guideto hourly, flat, and word rates for freelance writers in different disciplines.) Usually, the publication will set the rate (there may or may not be room for negotiation), but it is useful to have an expected rate in mind so that you think twice about taking work that pays less than your desired rate. You can always take on lower-paying work, as long as you also have higher-paying work that will allow you to pay your bills, or if the piece is likely to bring you more work or prestige. But don’t jump at work just because someone is offering to publish you. Remember that your work is valuable and it is your business; so don’t give it away unless there is a clear business reason to do so.
Most freelance writers aren’t paid by the hour because it’s more expensive for the publication, but if you are offered an hourly rate, bravo! You’re in good shape. All you have to do is decide if that hourly rate seems fair, based on the type of work you’re doing—and keep in mind you can always try to negotiate the rate. However, most of the time you’ll be offered a flat rate or word rate for the piece. So, if an article for a website takes you one hour to complete and you’re being offered 50 bucks for said article, that’s great: you’ve made 50 bucks an hour. However, if that article takes you several days to complete, you have to consider how much you’re really making. This isn’t to say you shouldn’t do cool pieces for peanuts—there will certainly be times when the exposure of a low-paid or unpaid piece is likely to lead to future opportunities for paid work; and building your résumé sometimes requires doing work that doesn’t pay very well. While you can cobble together an income with little pieces here and there, you should always be honest with yourself about how much each gig is actually worth.
Treat Your “Survival Job” with Respect
Most freelance writers today cannot live entirely on their writing. Gone are the days when a writer could make thousands from one or two magazine articles. In that same vein, resist the temptation to idolize established writers’ full-time jobs at big magazines where they seemingly get to write about whatever they want. Instead of looking too far ahead, it’s important to think about what part-time jobs you can do to remain financially stable.
Whether you are waiting tables, dog-walking, working retail, or doing any other job that is just crushing your creative soul, here’s a hard truth: being a writer is a long game and you’ve got to take care of yourself. Having that extra thousand dollars in the bank may be better than cranking out a few more freelance pieces when you get to the end of the month. Your day job may be the only thing between you and being broke.
Invoicing, Budgeting, and Getting Paid
Freelancers know that their income arrives in fits and bursts. Though your income will probably never be as regular as a biweekly paycheck, there are some things you can do to stay organized and plan ahead.
The first step to getting paid for freelance work is to invoice the publisher immediately upon completion of our work. Include the term of payment in your invoice. Unless otherwise stipulated in your contract, the standard term for payment is 30 days. If you ask for a quicker turnaround you may be pressing your luck, but you should feel free to send a reminder to the publication if you haven’t been paid in the agreed upon amount of time. There are many apps and online tools for keeping track of your invoicing, including Freshbooks and Quickbooks, which automatically assign invoice numbers and organize your invoices chronologically, and in one place. If you don’t use a third-party invoicing system, maintain a spreadsheet to track your outstanding payments. Record the amount you are owed in the sheet, along with the publication, invoice date, and invoice number. Whether you are using a spreadsheet or accounting software, it’s essential to record payments as received when they arrive.
When getting paid by a publisher, always sign up for direct deposit if given the option. This way, you can deal directly with an accounts payable department, and avoid lost checks and third-party fees. Once you get direct deposit set-up, subsequent payments will be prompt and automatic. This is a bit more work on the front end, but in the long run it will speed up the process and make your life much easier.
If direct deposit or third-party payment systems like Paypal are unavailable, you will be paid by check. For the purposes of your own budget, be a pessimist. No matter how much you are paid and no matter how professional the magazine, you’ll likely have to wait much longer than anticipated to actually get your check. It isn’t fair, but it’s better to account for a late payment than to be burned by one. If certain publishers pay quickly, keep that in mind for future pitches. Even if you don’t love the stuff you write for them, it’s important to have consistent work with publishers who pay reliably.
When the check finally arrives, deposit it immediately. This may seem obvious, but stacks of junk mail have a way of swallowing uncashed checks and bills alike. The fastest way to deposit a check is to use your bank’s mobile app. This allows you to deposit your check from the comfort of your own home by taking photographs of your check within the app. After you’ve deposited the check, write “Mobile Deposit” and the date across the front of the check. Once you get the email confirmation that your deposit has been processed, you can rip up the check and throw it away; there is no need to save it.
Lessen Your Stress
Writers are, by nature, creative people who are not necessarily inclined to put extra energy into things like accounting and financial management. However, properly managing your freelance finances is an essential part of taking yourself seriously as a writer. Writing is not a hobby, it’s your career, and it’s important to hold it to the same standards you would any job.
Everything about being a freelancer can create anxiety, including financial management. But the more organized you are, the less anxious you’ll be—freeing up energy to worry about more important things, like writing.