tax tips — July 16, 2018

How to Price Your Freelance Business with Taxes in Mind

by Susannah McQuitty

An illustration of a freelancer

Hey, freelancer—stop me if this sounds familiar. You’ve just opened your website or started an account with a freelancer platform, and your first client has popped up with a job. You’re ecstatic and jump on the opportunity, but then they ask the big question: “What do you charge?”

Well, what do you charge?

Money is an awkward subject to discuss for a lot of people, and when it comes to selling your own creations or services, it can get pretty uncomfortable if you’re not confident with the prices you’ve set.

So where do you start when it comes to pricing at a fair rate?

How much money do you want to make as a freelancer?

Ha! Funny question. I’d love to make millions of dollars writing tax blogs every week. Ha ha! Ha. Well, okay, probably not going to happen.

On a more realistic note, I do know my monthly bills, which helps me calculate how much I’d need to earn from freelance work to meet my goals. (Technically I’m not a freelancer, but you get what I’m saying.)

Is your self-run business going to be your livelihood? Or is it just a way to make car payments without touching your 9-to-5 paycheck? Know what your goals are for freelancing, and turn that into a definite number.

What do your freelance services cost you?

When I say “cost,” I’m talking about time too.

To find out the true cost of what you’re doing, you’ll need to calculate:

  • How much time it takes to complete the job from start and finish
  • How much money you have to spend to make it happen

When you do this, don’t just add up the time you spend shooting the photos or typing the blog post. Include the time and money it takes you to drive to location, pay the parking fee, set up the tripod, pack it all up, fill up on gas, and go home.

Every part of your creative process that must happen for the final product to work needs to be taken into account. Once you have a number for how much money and effort it takes, add that to the amount that you want to make.

Taxes for freelancers illustration

How will income taxes and state taxes affect your freelancer paycheck?

Relax—this isn’t going to be the part that makes you throw up your hands and give up. (Hopefully that won’t ever be a part, but you know.)

Many freelancers don’t quite make it to this step before it’s too late. As a freelancer, you have to be your own boss when it comes to tracking how much tax you owe and making sure the IRS gets it each quarter.

You may have heard stories of first-year freelancers getting hit hard with a huge tax bill in the beginning of the year due to fees and penalties on top of the taxes they already owed, simply because they didn’t factor taxes into their pricing.

To figure out how much your taxes will be, you’ll need to:

  • Subtract your business expenses from your income
  • Calculate self-employment taxes on your profit

Now that you know what your taxes are, you can adjust your price so that after taxes and expenses, you still get to take home your goal amount.

Not sure how to do that? No problem. We have a handy tax estimator app to help you understand your tax situation, even if you’re a freelancer!

Step four: Be confident in your final price

Once you finish calculating how much you should charge to cover taxes, expenses and your desired income, the number may surprise you—and fears may start sprouting up like CGI weeds in a lawn-care commercial:

“Who would pay this much for my service?”

“Is what I’m doing actually worth the money?”

“How can I convince anyone to hand over that amount of cash?”

Listen, you may have to make some minor adjustments, but don’t back down; your clients will ultimately value your work if you do. You know your needs, your goals, and how much you need to make for the gig to be worth it. Be confident and willing to stand up for yourself, and you’ll win clients.

Send us questions about freelancing, taxes for self-employed persons, or pricing your services in the comments below!

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