Benny’s Basics: Quarterly Taxes

You could read the information yourself, or you could get the benefit of Aaron Taube leading the way.

Step 1: For filing your federal quarterly taxes, you’ll first need to get a hold of IRS Form 1040-ES, which has all the information you need to estimate your taxes for the coming year. Make sure you find the form for 2015 and not an earlier year.

Step 2: Calculate your estimated earnings for the year. Make sure to take into account the fact that your customers may not all be settled up with you by the end of 2015. When in doubt, it’s probably good to err on the side of overestimating your projected earnings.

Step 3: Subtract your business expenses from how much you expect to earn, and plug your earnings into the self-employment tax and deduction worksheet.

Step 4: Once you have your estimated self-employment tax and the deduction you’ll be allowed to take, you can input that information into the estimated tax worksheet to find out what you will owe the federal government for the year. Mine came out to a little more than 25% of what I expected to make.

Step 5: You can choose to pay your quarterly taxes based on either your estimated taxes for the coming year, or on taxes you paid in the previous year. You’ll ultimately be stuck paying the same amount of money, but at least you have some flexibility in the scheduling.

Step 6: Use your estimated earnings to calculate your estimated state and local taxes. It’s different for every state, but living in New York City, I wound up having to pay about 8.5% of my estimated earnings.

Benny Tips:

Online Payments:  You can pay your Federal quarterly taxes online by using the Electronic Federal Tax Payment System. It’ll take about a week for the IRS to mail you a PIN number you’ll need to log in, so if you’re doing it this way make sure to plan ahead! Once you’ve gotten your PIN, this system will allow you to link your bank account to the site and pay your federal quarterly taxes directly to the IRS, without having to worry about dropping a check in the mail.

Quarterly Tax Schedule:  It’s called “quarterly” tax but the year isn’t broken up into even quarters and you may owe tax when you don’t expect to in 2015:

  • For the period January 1st to March 31st; quarterly taxes are due on April 15th
  • For April 1st to May 31st; your taxes are due June 15th
  • For June 1st to August 31st; your taxes are due September 15th
  • For September 1st to December 31st; your taxes are due January 15th, 2016

Quarterly Taxes: My First Time as a Freelancer

Do My Taxes Myself

[Credit: Broad City, Comedy Central]

If you’d prefer a shorter how-to, check out this Benny’s Basics with step-by-step instructions.

When I really get to thinking about it, filling out my first set of quarterly taxes as a freelancer is a pretty scary proposition.

In the roughly three months since I left my full-time job as a reporter at Business Insider, I’ve been living with an unfortunate bit of uncertainty as to how much money I actually have in my possession.

To date, I have kept this uncertainty from growing into crippling anxiety by employing the same technique I have used in the past to deal with various other money worries, which is to say that I have been Actively Not Thinking About It.

In any event, I now have to face the music and find out how much of the money I have made writing various corporate blogposts and sponsored content these past few months will go to the public good.

As I sit down to make these calculations, it occurs to me that the dollar amount of the resulting tax bill will essentially determine whether my not-overly-considered decision to take up freelancing was “a bold and daring move toward personal freedom” or “a switch to an economically unfeasible lifestyle made by the sort of financially illiterate doofus who took 15 months to sign up for Business Insider’s commuter tax benefits program.”

Thus far, I have been setting aside 30% of every check I have received for tax purposes, and a bill around this percentage would put my bank account in a pretty solid place, relative to where it was when I left my job. A bill of around 45% or (gasp) 50% would make me feel pretty silly about the whole thing.

First up, I need to pay my quarterly federal estimated taxes, which is essentially one-fourth of the money I expect to owe the U.S. government for all of 2015. To do this, I will have to guess how much money I will make in 2015, then use Form 1040-ES to take a crack at how much I will owe the U.S. government for the year.

The first thing the form asks me to do is to estimate the “income and profits subject to the self-employment tax,” which is essentially the amount of money I expect to make freelancing minus the amount of money I expect to pay for certain business expenses like my portion of the internet bill I split with my girlfriend and the $25.16 I give GoDaddy each year to continue hosting my website.

This part was pretty tough. I honestly have no idea how much money I will make freelancing this year, or even if I will still be self-employed when 2016 rolls around.

The other difficult thing is trying to figure out how to calculate how much I have made. As any freelancer knows, there are essentially two balances you need to keep tabs on: the value of the work you have performed (which you have some control over) and the value of the work you have actually been paid for (which you, uh, don’t really). So in the first quarter of this year, I was paid $6,370 for freelance work, but by the end of March, I was owed an addition $4,550 for work I had already completed. (EDITOR’S NOTE: There are two different methods of accounting that reflect this difference: accrual basis accounting and cash basis accounting. We’ll have more on this later!)

If you’re scoring at home, that’s the difference between a person who makes $25,000 a year and someone who makes $43,000 a year.

This calculation was made even more difficult by the fact that I have made progressively more money each of these first three months, so multiplying the 2015 earnings to date by 4 would probably (hopefully) wind up being significantly less than what I will actually make.

Instead, I chose to make my calculation as follows: I multiplied the value of the work I performed in my best month ($5,550) by 9 to account for what I will make in the final three quarters of the year and added it to the value of the work I performed during the first three months of this year ($10,920) to come up with a baseline of performing $60,870 worth of freelance writing in 2015.

And here is the part of the process where I just basically started making things up.

There is really no way for me to know for sure, but my hunch is that I will be able to continue increasing the amount of money I make each month as more and more prospective clients see my work out on the internet and hire me to write things for them. It is not entirely out of the question that, with some luck, I could wind up doing $70,000 worth of work this year

HOWEVER, the nature of freelance work is such that it would be an absolute miracle if I was paid all of the money I was owed by December 31, 2015. And so, I settled on a grand total of (drumroll, please) $65,000 in estimated earnings for 2015.

My thinking is that even if I don’t wind up making that much money, I will be better off overestimating and getting to keep more than I had expected than underestimating and needing to pay a ton of extra money on tax day.

My “business expenses” are minimal, so I didn’t factor them into my calculations. Even though I work from home, federal guidelines say you can’t write off your housing expenses unless your home has a dedicated space that you use exclusively for work. My workstation is also our kitchen table, so this is out of the question for me.

Next, it is finally on to filling out the “2015 Self-Employment Tax and Deduction Worksheet,” which is essentially a warmup to the our main event, at least for the federal taxes, the “2015 Estimated Tax Worksheet.”

Basically the self-employment tax worksheet has you plug in the amount of money you expect to make and then asks you to do a bunch of calculations (“multiply line 2 by 92.35%,” “multiply line 3 by 2.9%,” etc.) to figure out what your self employment tax is going to be.

And let me tell you something, reader, the IRS is not f***ing around with this self employment tax. Mine will be $9,183 for the year, roughly 14% of my estimated my earnings. And that’s on top of the other federal taxes, which came out to $8,320.76, for a total federal tax of $17,503.75. That’s more than a quarter of everything I expect to earn this year, and we haven’t even gotten to state taxes yet! I don’t think I would ever vote for a Republican, but I at least now understand why someone might.

Fortunately, the IRS allows you to choose whether you want to pay your quarterly taxes based a) on what you expect to have to pay this year or b) on what you paid last year. For instance, I paid $6,811 in taxes for 2014 when I was working at Business Insider, so the IRS would allow me to avoid a tax penalty by paying one quarter of that ($1,702) four times a year. Then, next April, I would owe them the remaining $10,692.75. Seeing as how I maybe did not save up as much money as I should have, I am going to mail the IRS a check for the minimum now ($1,702) and try to make sure I can pay the rest on Tax Day 2016.

If you like, you can also make your federal quarterly payments online using the Electronic Federal Tax Payment System. Once you sign up, it’ll take about a week for the IRS to mail you a PIN number you’ll need to log in. After you get it, you can link your bank account to the site and pay your federal quarterly taxes directly to the IRS, without having to worry about dropping a check in the mail.

My New York State taxes were fairly straightforward once I had figured out how I was going to estimate my 2015 earnings and gone through the process of filling out my federal forms.

All I had to do was plug my estimated $65,000 in to state tax form IT-205-1 and follow their steps for calculating my New York State and New York City taxes (each state, and sometimes municipality or city, has its own tax formula, so it’s important to find yours). I wound up with an estimate that I would need to pay $3,348 in state taxes and $1,960 in New York City taxes, the latter of which I feel like is a fairly steep price to pay to live in a place where it’s cold 5 months (sometimes more!) out of the year and they are often already charging you $10 for a pint of beer.

I also had to pay an additional $221, for the Metropolitan Commuter Transportation District, which is a tax levied on self-employed people who live in New York City or any of its surrounding suburbs.

As was the case with my federal taxes, I was given and accepted the offer to pay my quarterly estimate based on the state taxes I paid last year, which were a little bit lower than this year’s tally, but not drastically so.

On the whole, if I make $65,000 this year, I will have to pay roughly 34% of that back to the state, federal, and municipal governments. While that’s a little more than the 30% I had been stocking away, I don’t think it’s so much over my initial estimate that my lifestyle is unsustainable. Even if the self-employment tax is kind of a pain, my expectation is that paying it will be better than having a boss to answer to every day.

Thanks for reading, and may your tax filings be quick and painless! Be sure to check back in the coming weeks, when we tackle other bugaboos of freelance life like categorizing deductions, cash basis vs. accrual accounting and other fun.

*This post was written by Aaron Taube on behalf of Benny*

Freelancer Profile: Adam Kopec, UX & UI Designer

Name: Adam Kopec


Freelance Profession: UX and UI Designer


Q: How long have you been your own boss?

I guess a year now, almost exactly a year. It’s pretty crazy. Although, I guess I am my own boss, but I’m in client services so I do a lot of servicing of clients, not just my own things.

Q: Why did you decide to become a freelancer?

My last full time position, I was at a company called GroupMe, a group messaging app, I was there for a while and in my time there I was trying to figure out what I wanted to do next. I wasn’t exactly sure but the one thing I knew I wanted to do was travel a bunch. So, I knew had this two month trip planned and I was really excited to do it. I was like, let me save a little bit of cash and go do this so instead of committing to something full time I decided to do a consulting gig and kind of fell in love with it. Went on my trip and then came back, and I’ve just been doing the same thing since. It’s been fantastic.

Q: What are some of the clients you’ve worked with so far?

Trying to think of what I can say that I worked on. [Laughing] But I’ll just say, mostly consumer stuff in New York, a couple mobile apps, some web apps, but predominantly consumer facing things.

Q: When you get started with a client what’s the first thing you do?

I think the first thing I do is make sure we’re cool…that they’re cool, that I enjoy working with them as people and I enjoy the product. But then when it comes down to it, getting a contract together and putting some stuff on paper. We start outlining some terms, payments, schedule, scope, stuff like that. And then agree on a start date and go.

Q: Do you have a client horror story you can share?

I don’t know, I hear of these clients from hell and terrible stories about clients not paying people or stiffing them in some way. But I’ve been really fortunate that the folks I’ve worked with have been awesome and, knock on wood, I haven’t had any horror stories yet. [Laughing] Unfortunately, I can’t provide any entertainment there.

Q: How are you sourcing your clients? And how are you avoiding terrible ones?

I think I’m really careful to go with referrals and word of mouth. I do my due diligence and generally the people I work with are friends. Or I’ve worked with someone they’ve known in the past and said they’re cool to work with. So I generally don’t work with people that are completely out of my network. There’s generally some referral stuff there.

Q: What is the one tool that you couldn’t live without as a freelancer?

Probably my design tools just to get things done but I’m not super sophisticated with my tracking or whatever freelancer management tools are out there. But I think email is huge, and I’m really excited about what you guys are doing with Benny, stuff like that.

Q: Are you working on any side projects of your own right now?

Not currently. But I have some things in mind that I’m pretty excited about.

Q: Is there anything that could get you to go back to being an employee, not just servicing clients?

[Laughing] Yeah, I think so. It’s something I’ve been thinking about a lot, freelancing is absolutely fantastic and you get this flexibility, you can bounce around between different clients and work in different things. But, I am open to the idea of going really deep into something else again and either starting my own thing or being somewhere early on where the things that are being built are very closely aligned with my interests or hobbies or just like spaces I’m interested in learning about. So, I’m open to the idea. It’s a tough sell just because I really enjoy this lifestyle right now but I can see myself eventually going back.

Adam Kopec was interviewed by Jacob Brody on July 21st, 2015

Freelancer Profile: Annie Gaus, Journalist & Content Consultant

Name: Annie Gaus


Freelance Profession: Journalist & Content Consultant


Q: What do you do?

I do a mix of journalism and consulting work, and the consulting work that I do is mainly around content strategy, which is kind of an umbrella term for many different things. In my practice, that’s been everything from running people’s social media accounts to developing content plans to actually writing blog posts and things like that and running email marketing campaigns. It’s really anything related to content production and content management. So that’s a piece of what I do, and the other piece is my own journalism work where I just independently pitch and write my own stories. Those are the two main categories of what I do.

Q: How did you get started as your own boss?

Well, I was a full time journalist for quite a few years. On the side, when I was still working full time, I did my own little social media management project so I kind of started developing what was the beginning of my consulting practice when I was still working full time. And then I left that job partly with the specific goal of building out my consulting work. So, I gave myself a little bit of time to develop that out more and worked for several months on defining my own value proposition and figuring out how to package my skill set and sell that out to agencies and publishing companies and anyone who really needs to offload their content tasks. That was about a year ago, and here I am. It’s been ok so far. [Laughing] But, there’s always a lot of paperwork and bullshit involved in being your own boss which is kind of what led me here.

Q: What has been your biggest triumph since you started freelancing?

I think one of the biggest hurdles for me – which is a triumph, but it’s not going to sound that exciting – one of the biggest personal hurdles that I felt was a block for me was the idea of contracts. You get to a point where you’re talking to someone about helping them out with work and then there’s a point where it’s like, ok, I don’t really want to help you anymore without getting paid, so what’s my system for writing and developing my own contracts. I’m not a lawyer, obviously, so  just overcoming that and figuring out a base contract that I can use for certain types of things and then the process of being comfortable with your rate and confident in your rate and sending that out to people. So I don’t know if that’s a really specific AHA moment, but it was, for me, a hurdle that I had to overcome.

Q: Have you had any nightmare projects or clients?

There was one client (a would be client, I guess) who never ended up hiring me for anything. You meet a lot of people who expect you to do a lot of things, ‘oh let’s do this trial project that I’m not going to pay you for and then if you do well on that we can talk about’… I’ve encountered a fair amount of that, and the big line, especially around here, is: ‘oh well we’re a startup so we can’t pay you.’ Just because you’re a start up doesn’t mean you get free work. One specific instance, not really a nightmare, but a huge amount of back and forth to the extent where I spent hours and hours of my life on this developing contracts, revising contracts, giving them a seed of a plan that would ordinarily in another situation be enough to hire me and then they demand lots of changes and then just go completely dark. That’s a version of what you encounter in a lot of ways when you’re your own boss.

Q: Is that something you wish someone had told you before you got started? If they keep going back and forth, it’s just not going to happen, let it go?

Yeah, I think that’s just something you learn as you go along and you learn how to manage those kinds of situations. But yeah, definitely. 

Q: Was it the negotiations and not the actual work itselft but getting the work set up what you wished someone had advised you on before you went out on your own?

I think it was that and the things I already mentioned about contracts and how to handle contract negotiations, that kind of stuff and also general advice on how to manage or mitigate people’s expectations. Especially when you’re someone like me and you’re working in this field content strategy which is fairly nebulous sometimes people’s expectations of you are completely unreasonable and expectations of what you can do in any given amount of time. And those of course those are all factors in the contract that you’ll end up putting together. And it’s just something you learn as you do more and more of them. I had very little advice when I went out to do this and that would’ve been certainly beneficial. [Laughing] So communicate with other freelancers about how they deal with stuff like that.

Q: What are the tools (software, whatever) that are indispensable for your freelance business that might not be obvious to other people?

[Laughing] Actually, it sounds lame, but I use Facebook a lot. I get a lot of work on Facebook. It’s a pretty lame answer, but it’s a huge communication tool for me and I’m in various sort of mini-professional groups and I end up getting tons of work from there. So that’s a communication tool for me. As far as organization, Skype, any communication tool you can think of, Google Docs – the whole Google suite generally, I’m kind of a junkie. Every project that I work on starts with a Google doc, I would say. As far as expense management and stuff like that… I really have no system, I just throw everything into a drawer and forget about it until tax time. [More laughing]

Q: Are there things you’re still trying to get better at? 

Areas where I can always use help are the expense management side, taxes, anything where you could help me predict my taxes which I just kind of kick money away and hope that it all works out. Which is kind of my current system. [Laughing]

Annie Gaus was interviewed by Jacob Brody on July 7th, 2015

Pros and Cons of Being a Freelancer, From a Freelancer

Jessa weird have to go to work every day

Credit: Girls, HBO

It’s surprising to me when I think about it, but I have now been successfully running my own freelance writing business for a full six months.

Though everyone in my life was very supportive when I told them I was leaving my full-time reporter job to write on a per-assignment basis for various tech companies, I have since learned that pretty much all of those people secretly thought I was acting like a crazy person.

After all, why would anyone want to part ways with a steady paycheck and health benefits from a known entity? Were there really enough companies that would pay me to write for them? And, as many concerned people have asked me, what would I do if things didn’t work out?

It’s true that all of these questions have been difficult for me to answer at different times over the past half year, but on the whole, I’m extremely pleased with my decision to make the leap. While it might not be for everyone, the benefits of freelance life have far outweighed the drawbacks for me thus far.

If you’re thinking about taking the plunge yourself, here are some pros and cons I’ve discovered in my time without a full-time gig:

Con: Freelancing is extremely expensive.

Having a full-time job comes with a lot of benefits — some of which you never even think about.

While the Affordable Care Act has made it easier for individuals to purchase health care, most of the plans available through the state and federal exchanges will likely wind up being significantly more expensive than what you’d be paying to buy healthcare through your old employer with no help from employers that pick up part of the cost. Employers also pay a portion of their workers’ social security and Medicare taxes, meaning that going freelance will require you to pay an additional significant percentage of your income in taxes each year.

On top of all that, there’s the double whammy of the fact that most employers withhold your taxes and health insurance payments from each paycheck, so usually the money you get from them is yours to keep, and all you have to submit to the IRS at the end of the year is your W2 form. As a freelancer, you’re constantly reminded of just how much these things cost because it’s up to you to set aside money to pay for them. From experience, it’s always a bummer to go from the excitement of receiving a nice-sized check to the disappointment of remembering how much of it will go to the tax man after you’ve collected your 1099 forms at the end of the year.

Another thing to think about is that if you have equipment you need to do your job, you’ll have to pay for that equipment — and any repairs — all by yourself. All of these added expenses should be factored into your calculations when you think about starting your freelance journey. You can, at least, deduct some of your expenses from your taxes assuming you’re keeping track of everything properly.

Pro: You don’t have a boss — mostly.

Having a boss is the absolute worst. Every time you take a full-time job, you give a virtual stranger the power to control an unreasonably significant portion of your personal happiness. If you don’t believe me, think about how much time you spend complaining to your friends and family. Then try to figure out what percentage of that time is devoted to complaining about your direct supervisor.

Often, your boss’ interests aren’t aligned with your own. Sometimes your boss leaves or gets replaced, leaving you at the mercy of someone you didn’t even choose to work for. And even if you have a “good” boss, you are required to manage an extremely important professional relationship from a position of subordination. I thank my lucky stars every day that goes by in which I’m not interrupted by an instant message asking what I’m working on or nudged to apologize for a mistake I didn’t make.

While I still need to maintain a good relationship with my clients in order to make a living, the power that was once concentrated in a singular boss is now distributed across about 10 different people. So if I decide I want to stop dealing with one of these mini-bosses, I can do so without agonizing over whether I want to undergo the highly unpleasant task of applying for a new full-time job. And rather than giving up my health benefits and livelihood by quitting a job, all I have to do when I drop a client is find another one to replace a small fraction of my income.

Even then, managing relationships with a client is a lot easier than with a boss because both sides are coming to the table on equal footing. This allows me to have more control over the relationship and set certain boundaries — for instance, I prefer to communicate via telephone or email rather than instant message.

Con: There’s no one else to motivate you.

While it’s nice not to have anyone nagging you to do your work, being a freelancer makes it very easy for you to let things slide.

In a way, my first few months of being a freelancer were a lot like my first semester of college in that both time periods contained a stunning realization that, for the foreseeable future, there were would be no immediate repercussions for shirking my responsibilities. But just as skipping class would ultimately come to haunt me when finals week rolled around, I soon learned that it was best not to spend my Monday mornings playing video games in my underwear.

Even during weeks where it appears that I don’t have much work to do, I’ve learned that I need to start taking care of my writing before I can relax. Invariably, the moment I put my feet up will be the moment I get three emails from clients asking for new pieces. If I haven’t started on the work that was already on the books, I either have to turn down the new jobs (and the money that comes with them) or make my clients wait (which isn’t good for anyone).

As someone who sometimes struggles to be a “self-starter,” I’ve learned that in the absence of a boss, I need to be disciplined about making sure I have had breakfast and am starting my work by 10 a.m. at the latest every morning.

A word of advice: even if you’re not planning to leave the house, make sure you put on pants and shoes to get yourself in the working mindset. Extra points if you’ve showered.

wearing a rob and jordans

Credit: Keeping Up With The Kardashians, E!

Pro: The amount of money you make is contingent on how much work you do.

Oftentimes in the world of full-time jobs, how much you get paid can be completely divorced from how much work you do. If you are on salary, you get paid the same whether you’re productive or not, and it can take years of great work to get a raise, if it ever comes at all.

One thing I love about freelancing is how much control I have over how hard I work and how much money I make. If I put in extra hours to finish a few additional projects this week, I’ll get paid more for completing them. And if I decide I’d rather have free time than the extra money, I can make that decision, as well.

Best of all, being a freelancer pretty much eliminates all of the time I used to have to spend looking busy. If I finish everything I need to by 3 p.m., I’m going to go for a run or kick back with a glass of wine instead of finding an additional task to work on so that my boss doesn’t think I’m slacking.

Con: Financial uncertainty and the crippling anxiety that comes with it.

Of course, not having a salary means you’re putting yourself at risk of not making enough money to pay your bills. Obviously, this is terrifying! I never forget that I am always two or three clients away from really having to scramble to make things work.

While things have gone incredibly smoothly for me thus far, a great deal of my success as a freelancer has been due to fortuitous circumstances outside of my control. At my last job, I sort of stumbled into learning how to write about advertising technology, an extremely niche skill that happens to have been deemed valuable by a number of venture-backed companies that have money to spend on content creation. Beyond that, I have parents who care enough about me and make enough money that they could afford to house and feed me for a while in the event that all of this blows up in my face.

All of this is to say that I have been extremely lucky to have made freelancing work for me, and there is no guarantee that other people will have similar success, or even that I will be able to sustain the roll I’ve been on.

With that said, there are things you can do to cut down on the financial uncertainty of making the freelance jump. If you can, you should try doing some freelance work while fully employed to gauge how much demand there is for your services. Another way to make things easier on yourself is to start reaching out to prospective clients to see if they would have regular work for you in the event you left your job.

Lastly, you’ll also want save up some money because you’re not always going to get paid on time as a freelancer. Having a few thousand dollars stashed away has allowed me to not sweat it when I’ve had to wait a couple months for a check to arrive or while sourcing new clients

Pro: That freelance lifestyle!

I “took off” one Monday in April because I wanted to watch Wrestlemania on Sunday night without having to worry about work cramping my style the following morning.

It’s possible I could have done this at a full-time job, but it certainly would have been difficult to explain my absence to a boss expecting me to be a go-getter and a team player. As a freelancer, though I’m out of sight and out of mind. So long as my work is in on time, no one needs to know or care how I spend my time.

There is nothing quite as freeing as going for a run in the park at 2 p.m. on a Tuesday with the knowledge that everyone else is at work. Or waking up and being at your desk immediately while your friends are pressed shoulder to shoulder on a crowded subway car. While this arrangement sometimes means I have to work late to get everything done, it’s a tradeoff I’m more than willing to make.

Con: Freelancing is lonely.

I don’t miss all of my co-workers, but I do miss some of them. As a bit of an extrovert, sitting by myself in my apartment all day can be a real drag. I also sort of miss the camaraderie of being part of a team.

In order to not go crazy, I try to make time to chat with my friends online and make sure to work from a coffee shop some days so that I can be around other human beings. I also have made friends with another freelance ad-tech writer, who I can call to commiserate with or to ask for advice when the time comes.

While everyone has a different experience, this list should give you a pretty good idea of  at least some of the things you should consider before leaving your job to make it as a freelancer.

Even with all of the negatives I just wrote about, I almost can’t imagine signing up for another full-time job. If you decide to go freelance, I hope you’ll wind up feeling similarly.

*Written by Aaron Taube on behalf of Benny*

Benny’s Basics: Some Quick Pros and Cons of Freelancing

For a longer read on these, check this out.

There are a lot of pros and cons to freelancing; here are a few quick ones:

Con: Freelancing is extremely expensive. Paying quarterly taxes, getting your own insurance, buying your own supplies…it adds up.

Pro: You don’t have a boss — mostly. You’re in charge of your schedule, which clients you take on and how you set up your agreements with them. So you’re the boss of you, as much as you can be while still needing to be paid by clients.

Con: You’re responsible for motivating yourself. No boss to make sure you’ve done things; just a client expecting a finished product on time.

Pro: The amount of money you make is contingent on how much work you do. The limit to your income is all based on you – how many clients you can take on, how quickly you can work…how much you’re charging. Done right, it’s a truly satisfying exchange of your product for money. Sweet, sweet money.

Con: Financial uncertainty and the crippling anxiety that comes with it. Nothing is guaranteed and it’s all up to you. Didn’t finish anything this month? No money. And yet, the rent is still due…

Pro: That freelance lifestyle! Hate working Tuesdays? Structure your workload so you don’t have to. Go for a run in the middle of the day or take a break and watch a movie. No 9-5 constraints for you!

Con: Freelancing is lonely. Working at home means unless you have a pet, you’re usually on your own. You’d think the lack of annoying coworkers would be awesome (and it can be) but not having other people can be more lonely than you might expect.

*Written by Aaron Taube on behalf of Benny*

Getting Covered: Navigating Insurance Choices as a Freelancer


[Image from Disney’s The Incredibles]

Editor’s Note: You will be able to buy insurance from Benny starting with the beginning of open enrollment on November 1st, 2015.

One of the few drawbacks to working as a freelancer is that it means giving up access to an employer-sponsored healthcare plan.

While having to come in to an office and work for a dumb boss each day can be fairly unpleasant, many employers make the whole deal more appealing by offering their workers subsidized health insurance packages that give them the care they need at an extremely low price (sometimes even free!).

As a freelancer, you’re pretty much on your own, unless you happen to qualify for federal subsidies (more on those later). Monthly payments can be fairly expensive (the cheapest bare-bones plan available to me was $154 a month), and unless you’ve ponied up for a plan with a high monthly cost, you’ll likely have to pay most of your healthcare bills yourself until you’ve already spent a certain amount of your own money on health services in a given year.

Perhaps you’ve read all this and are wondering why you would even want to bother buying health insurance in the first place.

Well, under the Affordable Care Act (aka Obamacare), people who are deemed able to afford health insurance in 2015 but choose to remain uninsured for three or more consecutive months will be subject to an end-of-year tax of either $325 for every uninsured adult member of their household or 2% of their annual household income — whichever amount is greater (you can find out more about this individual mandate tax, and whether you’re subject to it, here).

The other big benefits of health insurance are that it prevents you from complete financial ruin — each plan has a ceiling on how much money you can pay for care each year — and that any plan you purchase through your state’s insurance marketplace gives you access to free checkups and screenings. Finally, if you visit a doctor in your insurance network, you will get a rate that your insurer has negotiated with the doctor that will be lower than what the doctor charges someone who has no insurance.

Finding Somewhere To Buy

Assuming you’ve decided that you want to purchase health insurance, you’ll have to think about whether you want to buy it in one of the following four places: a public health insurance marketplace, a private health exchange, an insurance company’s website, or an insurance agent or broker.

The big benefit of buying insurance through a public marketplace — either your state’s health exchange or the federal exchange set up to service the 36 states that don’t have marketplaces of their own — is that doing it this way makes you eligible to receive federal subsidies if you make less than a certain amount of money. According to, you generally will not be eligible for subsidies if you make more than $46,680 annually as an individual or if your family of four brings in more than $95,400. To get a better sense of how much government help you might be able to get, you can use this calculator from the nonprofit Kaiser Foundation. As you might expect, the less money you make, the more subsidy money might be available to you.

The public marketplaces are open for business to everyone during what is called an “open enrollment” period, a timespan where during which people are expected to purchase their health insurance for the coming year. For 2016, the open enrollment period will be between November 1, 2015 and January 31, 2016.

However, you might also be able to purchase insurance through a state or federal public exchange if you have recently had what is called a “qualifying life event” that gives you personal access to a “special enrollment period.” Qualifying life events are things that change your insurance status like having a baby, getting married, moving, losing employer-sponsored health care, or being removed from your parents’ insurance. I recently aged out of my parents’ insurance plan, and chose to purchase my insurance on the New York State exchange during my special enrollment period. To see if you qualify, you’ll have to visit your state’s health exchange (which you can find here) or the federal exchange.

In addition to purchasing healthcare on the exchange, you can also buy from a broker, who will be able to offer you a bunch of different plans from across a number of insurance companies, or from a private exchange run by an outside entity, or from any insurance company’s website. While the prices for coverage will be the same whether you a buy a plan on the public exchange or from somewhere else, buying from one of these other sources will give you access to additional plans that are unavailable on the public marketplace. You can find information about plans not available on the exchange here and you find a list of brokers in your area on your state or federal health exchange.

Choosing What’s Important To You

There are a lot of different options out there, so it’s really important to think about how much healthcare — and what kinds of healthcare — you’re going to need over the coming year.

The way insurance plans are structured is that you pay a monthly fee whether you see a doctor or not. This monthly payment is called a premium. Even though you’re paying all this money each month, you might have to pay for all of your health services — except for preventative care — out of pocket until you reach a certain threshold. This threshold is called a deductible, and generally speaking, plans with high deductibles have lower premiums and vice versa. For instance, if you have an extremely high premium, you might have a health plan that pays for a portion of your visits to your regular doctor right off the bat. However, a plan with an extremely low monthly premium will likely require you to spend a relatively large amount of money going to doctors before you reach your deductible and your insurer starts chipping in.

After you’ve hit your deductible, you will only have to pay a certain amount or percentage of the total healthcare bills you rack up. The part of the bill you’re responsible for after meeting your deductible is called the co-pay (if it’s a flat fee) or the coinsurance (if it’s a percentage), and it will vary based on what type of service you’re receiving (i.e. you might be stuck with 20% of the bill for a trip to your primary care doctor but have a $10 flat fee for every generic drug purchase you make). You will have to pay a co-pay or coinsurance for services up until you hit your out-of-pocket maximum, which is the absolute most your plan will force you pay for covered services in a given year.

If you buy your insurance on a health exchange, you will be able to choose from four tiers of health care — bronze, silver, gold, and platinum — with the bronze plans having lower premiums in exchange for higher deductibles and out-of-pocket maximums, and the platinum plans having higher premiums in exchange for lower deductibles and out-of-pocket maximums. If you’re under 30, you might also be eligible for a catastrophic level health plan, which offers the lowest monthly premiums and virtually no savings until you’ve hit a relatively high out-of-pocket maximum.

As a note, deductibles and out-of-pocket maximums will be higher if you want your insurance plan to cover people in addition to yourself, like a spouse or child (these additional covered people are called “dependents”). There are four levels of coverage: self, self + spouse, self + children, self + family.

Generally speaking, if you’re in good health, it might make sense to have a bronze or silver plan that has a monthly premium but higher deductibles, co-pays, and out-of-pocket maximums. By this logic, you’re betting that you won’t have to use the doctor enough to hit even a relatively low deductible, so it makes sense to go for a lower premium. However, you risk having to pay more money in the event that you have to go to the hospital and rack up a big bill.

Conversely, if you know that you’re going to need a lot of health care in the coming year, it might make sense to bite the bullet on the higher premiums of a gold or platinum plan in exchange for lower deductibles and co-pays, as well as the knowledge that there is a lower ceiling on what you might have to shell out for healthcare in a given year.

You’ll also want to be thinking about which doctors will be available to you. If you choose a plan that is what is called an HMO (health maintenance organization), you’ll have to stick to the doctors in your insurer’s network in order to receive coverage, and you’ll have to choose a single, in-network primary care physician, who then refers you to specialists when he or she feels is appropriate. If you choose a PPO (preferred provider organization), your insurer will sometimes cover services provided by out-of-network doctors, with the caveat that they will pay less of the bill than if you’d used an in-network doctor. There also POS (point of service) plans that are sort of a hybrid between PPOs and HMOs. In a POS plan, you have the option of seeing out-of-network doctors for a higher fee, but you still need to get a referral from your primary care doctor to see a specialist.

If you have a primary care physician that you like and want to keep going to, you can check each plan’s provider network to see whether he or she is on it. If you don’t, you can use a site like BetterDoctor or ZocDoc to see reviews for in-network doctors in your area. And you can always call your doctor’s office or potential insurance company to confirm coverage.

Another thing to consider is whether there is any medicine you take regularly. Each plan has different drugs that it covers and different coinsurance rates and co-pays for those drugs. You can check your plan’s prescription drug list to see what works for you.

And, if you’re still having trouble making up your mind after all of this, you can reach out for guidance to a health care navigator who has been trained on how the public exchanges work or a broker licensed to recommend and sell insurance plans at no cost to you (brokers are paid by the insurance companies and navigators are paid by grants funded federally or at the state level). Any of these brokers or navigators who are licensed to sell insurance are required to take your personal information into account and make recommendations that are appropriate for you. Lists of navigators and brokers in your area can be found on your state or federal public marketplace.

Since I almost never go to the doctor, am under the age of 30, and generally stay in the NY area, I knew I wanted a catastrophic level health plan that would be relatively cheap and only help me out in the event something really bad happened to me. I then chose a plan from an insurance company called Oscar after speaking with a healthcare navigator, who recommended them based on their hands-on customer service. Oscar is only available in New York and New Jersey, but if I were a frequent traveler, it would have been important for me to find an insurer that had coverage in other places.

Very few of the health plans on the New York exchange included dental insurance, and none of them included vision insurance, so I elected to pass on those options. While it might make sense for you to purchase vision or dental directly from an insurance company if you have dental or vision issues, my thinking was that I don’t use those services often and that I would be able to pay out of pocket should the need arrive. Recently, I paid $125 without insurance for a teeth cleaning, which seemed fairly reasonable.

For $180.48 a month with Oscar, I get free access to preventative care and three free visits to a primary care doctor over the course of the year. However, I receive no co-insurance assistance from my plan beyond that until I have spent $6,600 out of my own pocket, at which point Oscar will pay for the entirety of all covered services I receive — in this case, my deductible and my out-of-pocket maximum are the same. For comparison, the cheapest bronze-level plan on the exchange was $308.15 and had a $3,000 deductible and a $6,350 out-of-pocket maximum.

Basically, I am crossing my fingers that I don’t get sick or hurt. Indeed, while I like to think I’ve offered some good pointers here for choosing the best plan for you, the sad truth is that under our present system, the only real way for freelancers to minimize costs for health services is, unfortunately, to utilize them as infrequently as possible.

*Written by Aaron Taube on behalf of Benny*

Benny’s Basics: Common Insurance Terms

Agent: A person licensed to sell insurance plans from a single insurance company that can help you choose the plan that is right for you (provided that plan comes from the insurer the agent represents). These people must act in your best interest and are forbidden from trying to push unnecessarily expensive plans on you. You can find a list of them on your state or federal health exchange.

NOTE: New York is one of a number of states that differentiate between agents and brokers (who sell insurance from a number of companies), but in other states, these individuals or businesses are known simply as “producers” and they can sell insurance in either capacity.

Broker: A person licensed to sell health plans from a variety of insurance companies. You can find a list of them on your state or federal health exchange. These people must act in your best interest and are forbidden from trying to push unnecessarily expensive plans on you. You can find a list of them on your state or federal health exchange.

NOTE: New York is one of a number of states that differentiate between brokers and agents (who only sell insurance plans from a single company), but in other states, these conduits are known simply as “producers” and they can sell insurance in either capacity.

Coinsurance: A percentage that you are required to pay for certain health services, with your insurer covering the rest. Oftentimes, you will only have access to a coinsurance for services after you have reached your deductible (see “deductible”). For instance, if you have a $100 doctor visit and your insurer gives you 30% coinsurance subject to a deductible, you will be charged $30 for the visit if you have reached your deductible for the year and the full $100 if you have not.

Co-pay: A flat fee you are required to pay for certain health services, after which your insurer will cover the rest. Oftentimes, you will only have access to a co-pay for services after you have reached your deductible (see “deductible”). For instance, if you have a $125 doctor visit and your insurer gives you a $20 co-pay subject to a deductible, you will be charged $20 for the visit if you have reached your deductible for the year and the full $125 if you have not.

Deductible: An amount of money you have to spend before your insurer will start helping cover the costs of certain health services. The number of services subject to your deductible (i.e. that your insurer won’t help you with until you’ve reached this threshold) varies from plan to plan.

Dependents: Other people who will be covered under your health care plan. Usually, a spouse, child or “family.”

Federal health exchange: A healthcare marketplace created by the federal government that people can use if they live in a state that does not have its own exchange. Plans bought on this exchange can be subsidized if people make below a certain amount of money (see “healthcare subsidy”). You can find the federal health exchange here.

HMO: A health maintenance organization. These kinds of insurance plans only cover services provided by in-network doctors and hospitals. They also usually require people to choose a single primary-care physician, who then refers them to specialists when necessary.

Individual mandate tax: Under the Affordable Care Act (aka Obamacare), people who can afford healthcare but don’t purchase it must pay a tax. People are deemed by the law to be capable of buying healthcare if a) the cheapest plan available to them would cost more than 8.05% of their annual household income AND b) they make enough money that the IRS requires them to file an income tax return. In 2015, this tax is either $325 for every uninsured adult member of your household or 2% of your annual household income, whichever number is greater. You can find out more about this individual mandate tax, and whether you’re subject to it, here.

In-network: Health care providers that your insurance company has negotiated rates with. If you have an HMO (see “HMO”), your insurer will only cover services received from in-network providers. If you have a PPO (“PPO”), your insurer might cover some services received from out-of-network providers, but you’ll have to pay more than you would if you had used an in-network provider.

Navigator: Someone paid by the government to help people understand the federal and state exchanges and get a better sense of what plans might be good for them. You can find a list of them on your state or federal health exchange.

Open enrollment: The timespan during which people are expected to purchase their health insurance on the federal and state health exchanges for the coming year. For 2016, the open enrollment period will be between November 1, 2015 and January 31, 2016. In addition to the open enrollment period, you can buy insurance on the exchanges if you have recently experienced a life event that changed your insurance status like marriage, the birth of a child, or the discontinuation of your previous insurance plan (see “special enrollment period”).

Out-of-pocket maximum: The highest amount of money you can pay in a year for health care services covered by your insurer.

POS: A point of service plan, which splits the difference between a PPO (prefered provider organization and an HMO (health maintenance organization). In a POS plan, you have the option of seeing out-of-network doctors for a higher fee (similar to a PPO), but you need to get a referral from your primary care doctor to see a specialist (as would be the case if you had signed up for an HMO).

PPO: A preferred provider organization. These kinds of insurance plans sometimes cover services provided by out-of-network doctors and hospitals. However, you’ll get greater savings from in-network providers.

Premium: A flat, monthly fee that you have to pay your health insurer — regardless of whether or how often you access health care services. [There are other less common types of premiums, including annual or weekly, depending on the type of insurance and the agreement with the carrier. However, as the number of payments increases over the course of a year, the fees also increase for processing.]

Private health exchange: A health marketplace operated by a private organization. These marketplaces give people access to plans not available on the state or federal exchanges, but you will not have access to government subsidies if you use them. There are more plans available this way, as the federal and state exchanges have a limit on the number of plans offered and all plans must meet specific guidelines.

Special enrollment period: When it is not during open enrollment, you can only purchase insurance on a federal or state exchange during a special enrollment period, which is granted to people after life events like having a child or losing the insurance they were previously on. You can see if you qualify here.

State health exchange: A healthcare marketplace created by one of 16 states that residents can use to purchase plans. Plans bought on these exchanges can be subsidized if people make below a certain amount of money (see “healthcare subsidy”). You can find your state’s marketplace here.

Subsidy: The amount of money the federal government will give you in tax credits to help you pay for health care purchased on a state or federal marketplace. You’re likely to be eligible for a subsidy if you as individual make less than $46,680 annually, or if your family of four earns less than $95,400 per year. You can figure out how much you’ll likely be able to get using this calculator from the nonprofit Kaiser Foundation. Subsidies can often be taken as either a reduction in your monthly premiums or as a tax credit at the end of the year.

Did we miss a term you think should be on here? Let us know at!

Going Legit: Setting Up An Entity For Your Freelance Business

[Credit: NBC’s Parks and Recreation]

(For a quick list of common entities and some Pros and Cons, check out this post.)

In the four months since I started as a freelancer, I have built a stable roster of good clients and have grown my little writing practice to the point that I don’t really have to worry whether I’ll make enough money to pay rent each month.

But despite this bit of success, my business is still relatively immature from a legal standpoint in that I have not yet registered it with New York State. As a result, I do not have access to a dedicated business bank account and, if anything were to go wrong on the job, someone could sue me — personally — for everything I am worth.

And so, to borrow from Jay Z the time he pretty much destroyed Kanye on his own dang song, it is time for me to cease being a businessman and evolve into a business, man. Not only that, but I’ll have to decide how I want to register my business — either as a sole proprietorship, a limited liability company, or as a corporation.

Even without doing any legal paperwork, all freelancers are considered by the government to be sole proprietors, meaning that they are the only owner of a small business in which there is no legal distinction between the owner and the business they operate. As a result, sole proprietors pay income taxes personally and all of our non-business income is potentially on the line if something we do during the course of business gets us sued.

At the very least, it makes sense for virtually every freelancer to level-up his or her sole proprietorship by registering the business name with either their state or local government (each state has different rules as to which branch of government you need to register with. You can click here to find out what the deal is where you live).

To do this, you need to obtain what’s called either a “certificate of assumed name” or a “doing business as (DBA) certificate,” which in New York costs about $100. In exchange, you get two major benefits: the right to legally do business under a name besides your own (i.e. “Aaron’s Very Good Writing Services” instead of “Aaron Taube”) and the opportunity to open a business bank account.

You may be wondering, as I once did, why you should have a business bank account. Since all of the money from my sole proprietorship is ultimately coming back to me, I reasoned, why would it matter whether it is first deposited in a bank account I’m only using for business purposes — especially if my minimal expenses make it easy for me to keep track of everything?

Fortunately, Team Benny’s favorite accountant, Nick Sher, was able to set me straight. As he explained, a major benefit of a business bank account lies not in what you can do with it, but in how it is perceived by others, particularly those who work for the Internal Revenue Service.

By running all of your business income and expenses through a separate bank account, you are creating the narrative that your sole proprietorship is a bonafide endeavor and giving more credibility to the expenses you mark off as tax deductions. Meanwhile, if you have the business expenses you’re deducting right next to the extra Candy Crush lives you bought from iTunes in your personal account, you run the risk of piquing an IRS agent’s interest under examination.

However, one thing a DBA certificate won’t get you is legal protection of your personal assets if something were to go wrong in the course of business. For instance, if you’re a sole proprietor home contractor with a DBA certificate, and one of your employees were to damage someone’s house while she was working on it, the homeowner could sue you and potentially be rewarded with your personal assets as well as the money you have in your business.

On the bright side, you (the home contractor from last paragraph’s hypothetical situation) could possibly shield your personal assets if you were to register your business as a limited liability company (LLC). How much legal protection you can get from an LLC varies from state to state, so it’s best to consult a lawyer to get a better handle on how much of a benefit an LLC might be to you.

A single-member LLC is similar to a sole proprietorship in that you pay taxes personally as opposed to on behalf of your business, but it can be more expensive to register an LLC with your state. According to Sher, getting signed up as an LLC in New York can vary between $800 and $3,000, depending on the county in which you publish notice of your LLC. This estimate includes state formation fees, newspaper publication fees, and the fees charged by an attorney to make all of this happen. The cost of forming an LLC varies by state, and many states don’t require people to publish notice of the entity they have formed.

The other thing to consider with an LLC is how it looks to your customers. For one thing, it makes you appear more professional. For another, it provides long-term clients with a greater degree of assurance that you will not try to claim that they have misclassified you as an independent contractor when you should be getting the benefits of full-time employment. If you’re not sure how your customers feel about this issue, you can always ask them. All things being equal, clients generally feel better issuing a 1099 to an LLC under an employer identification number — which comes with either a DBA or an LLC — than to an individual using his or her social security number.

Ultimately, I decided against registering an LLC for several reasons: I have few outside assets that could be at play in a lawsuit, none of my clients has asked whether I am registered as an LLC, and, right now, I’d really just prefer to have that $800.

The last option at your disposal is to go all out and turn yourself into a corporation. This isn’t really a good idea unless you are planning to build a business with big revenues and a bunch of employees, but sometimes people do it anyway. By registering your business as a corporation, you create a separate legal entity that will be responsible for paying a corporate tax on any profit it makes. As (presumably) the company’s only shareholder, you might have to pay taxes on both the company’s profits and on any dividends you choose to pay yourself. An additional way to pay yourself would be to take a salary from the organization, which requires the cumbersome process of setting up payroll. Either way, if you’re a freelancer looking to service clients, a corporate structure is not the path of least resistance.

However, people may also choose to get rid of this double layer of taxation by electing to turn the corporation into what’s called an S Corporation (otherwise known as an S Corp). By doing so, you eliminate the corporate layer, and all income is then taxed at the individual level, except for in New York City, which does not honor the S election.

Hypothetically, you could earn tax savings by taking a salary that is smaller than the amount of profit your business is generating, but IRS rules require that people take a “reasonable salary” commensurate with the portion of the business’s profits that they are responsible for.

Sher says that a talented accountant can set up an S Corp in a way that optimizes your tax savings each year, but the funds you’ll have to devote to paying that accountant would probably make the whole thing a wash at anything below six figures of income. Add in all of the time and effort you’d have to spend making sure you were in compliance with the law, and it just doesn’t make sense.

Ultimately, the best bet for most freelancers will likely be to get a DBA certificate or to register as an LLC. While both options are good ones, it’s up to you to consider the pros and cons and determine what’s right for your business.

*Written by Aaron Taube on behalf of Benny*

Benny’s Basics: Common Entities for Freelancers

A short guide to common entities for freelancers and independent contractors. For the more in-depth version, head over here.

Certificate of Assumed Name/Doing Business As Certificate


  • You can name your business whatever you want, so long as you’re not violating trademark laws and no one else in your state is using your desired name.
  • You can open a business bank account, making you look more professional to your clients and creating a more transparent system for deducting expenses come tax time.


  • It’ll cost you about $100.
  • Your personal assets are entirely at risk in the event of any kind of legal issue.

Limited Liability Company (LLC)


  • You might be able to shield some of your personal assets from a lawsuit that arises over the course of your work.
  • You look super professional to your clients, and give them added confidence that you won’t try to get yourself classified as an employee.
  • You get a business bank account, just like you would as a DBA.


  • It’s significantly more expensive than a DBA certificate.
  • Even with the limited liability, your personal assets could still be at risk in a legal dispute.

S Corporation (S Corp)


  • You can raise money for your company by selling stock.
  • You might be able to save some money on your taxes.


  • Whatever money you save on taxes will likely find its way into your accountant’s pocket, anyway.
  • You’ll have to spend valuable time and energy making sure you’re taking a “reasonable salary” and that you’re accounting practices are in compliance with the law.

*Written by Aaron Taube on behalf of Benny*


Handy Links:–business-certificate;cluster_id=1726984