Today’s post is the best kind: It’s one that was inspired by a question I received from a reader. Here’s a little peek at the general gist of her question:
I landed my first writing gig and just received my first freelance writing paycheck. But, now I’m stumped. I hear about needing to pay taxes. Do I do that now? Is there something I should be doing with this specific check? Accounting sucks… help!
Alright, I may have added a little dramatic flair to that. But, you get the point.
This is a great (and far too relatable!) question. When I was first getting started freelancing, I spent every day living in fear that an unmarked car would pull up in front of my house, two men in suits with earpieces would hop out, and they’d demand to audit my little freelance writing operation. The second I screwed up a check number or made a purchase out of my personal checking account, I thought they’d be there pawing through my receipts with disapproving looks on their faces.
Let’s face it—managing a business is scary, particularly when you’re dealing with the finances yourself.
So, I figured it was time to simplify things as best as I can and give this very question a much-needed answer: What exactly should you do after receiving your first freelance writing paycheck?
I’m a writer (obviously). And, trust me when I tell you that I don’t moonlight as an accountant (math… blergh). With that said, I’m more than willing to provide advice based on my personal experience. But, I always, always, always recommend working with a professional to navigate these issues and ensure you’re playing by the rules.
I found an accountant that I love and I honestly don’t know what I’d do without him. Plus, he keeps mini Snickers bars on his desk. So, really, how bad can he be?What should you do after you receive your first payment as a #freelancewriter? Read here: Click To Tweet
First things first, congratulations! Scoring your first paid writing gig is no small feat. You’re getting things rolling—that’s awesome news!
But, when you finally wrap up your happy dance, this is usually when you’re struck with that brutal realization: Oh crap, what happens now? What do I need to do with this money?
Fortunately, this doesn’t need to be nearly as complicated as you might assume. Here are the steps I follow every time I receive payment for an assignment—whether it’s a check, PayPal transfer, direct deposit, or a pile of gold coins (that’s never happened… still waitin’).
Hey, you! You just got paid for doing work you love. That deserves some celebrating. So, go ahead and shake your booty for a minute or two. You’ve earned it!
Next up? Depositing that hard earned cash of yours—preferably to a bank account specifically for your business.
I recommend establishing a business account as part of getting your business up and running. It’s not tough to do, and it really makes life easier for both you and your accountant. Read about that and the other business fundamentals you should get setup in my post right here.
Despite what your worst nightmares might be telling you, the IRS won’t be showing up at your door with their palms outstretched the second you receive a check in the mail. There’s typically nothing you need to do with that payment immediately—other than record it.
Personally, I use QuickBooks to manage my business accounting. Maybe you want to use a similar software. Or, perhaps you want to create your very own Excel spreadsheet to keep an eye on all of your numbers. Whatever works for you is fine!
The important thing here is to record the payment so that you’re keeping a running total of your business income. Typically, when I apply a payment to the open invoice, I record the following information (if available):
Here’s where things might start to make you a little bit cross-eyed—and I don’t blame you for that one bit.
When you’re employed in a traditional full-time role, your taxes are taken directly out of your paycheck. That’s why your take-home pay ends up being much smaller than what you’re technically compensated.
But, as a freelancer, you don’t have one standard employer—which means you’re responsible for paying taxes yourself.
You know that, right? This is usually where the questions come into play: When? How?
Again, I’m no CPA, but you should be paying your taxes quarterly. What does that mean? Well, you’ll be sending two checks—one to your state’s department of revenue and one to the IRS—four times throughout the year. Your payments should be postmarked by the following dates each and every year:
Now comes the other big question: How can you know how much to pay?
Well, this can get tricky—which is yet another reason I recommend working with an accountant. But, if you want to try to go it alone, the tax forms you’ll need come with worksheets that you can fill out to determine your payment amounts.
If you’ll allow me to do another plug for working with an accountant, consider this: Rather than needing to crunch numbers and figure out how much I should pay each and every quarter, my accountant does that work for me. My tax forms come pre-filled with the amounts I should be paying each and every quarter. Pretty sweet, right?
But, regardless of if you work with an accountant or not, you’ll want to do the same things:
I recommend keeping track of the payments you make as well, so you have that information if and when you or your accountant needs it. I have a spreadsheet where I record the following information about my estimated payments:
Make sense? Sort of? I hope?
Listen, I know that this can all feel confusing and overwhelming (ahem, yet another reason to sit down with an accountant). But, as long as you do your research and keep accurate records, you’ll be a step ahead of most self-employed people out there.
Don’t worry—you’ve got this!