Freelancing Advice

November 11, 2006 9:29 AM

I'm about to start some freelance web design work, this is my first time doing something like this, what do I need to know about taxes and sending my client bills?

Is there special software that I can use to keep track of the time I spend on the project that will automatically produce invoices for me to send them?

What do I need to know in terms of taxes, how much should I set aside for taxes?

posted by blim8183 to work & money (11 comments total)

This will depend on how much you make at your "real" work and how much you will be making freelancing. You can get a very rough idea by figuring out what tax bracket you were in last year and using that number plus about 8% (for the half of the SS tax your employer normally covers).

If it's significant bux, pay for an hour of a CPAs time to help you plan for the IRS. You may also owe state taxes depending on where you live.

As for your clients, they're not going to care about your taxes, they just want a number. They have no need or desire to see any tax accounting on your invoices unless in your state they'll owe sales tax on your services. So just bill them what they owe (6 hours @ $75/, $450 or whatever).
posted by maxwelton at 9:39 AM on November 11, 2006

About invoices, I've never felt it necessary to use dedicated software to produce them. I created a timesheet template in Excel that lets me clock in and out as I work on a project and adds up my total number of hours. Then I have an invoice template in Word; I just plug in the client's contact info, the name of the project, and the bill (hourly rate x number of hours). It takes maybe five minutes to produce.
posted by Siobhan at 10:15 AM on November 11, 2006

sidejobtrack is easy, free and includes custom invoicing. I use it to track my time on jobs as well. You may also want to consider a penalty/reward for payments late/early. Usually 10%-15% of invoiced total.

Also, I would say 15-30% for taxes is a safe bet. And if you are doing this a lot, I would put this aside in a separate bank account then your personal one.

Backpackit is a nice tool to keep organized. Also, BaseCamp is a great project management tool. Both have free services but if you are going to have many clients at one time then you might consider upgrading for a small monthly fee.

Here's a few references:
Developing a Contract
Steps to becoming a Freelance Web Developer
posted by freudianslipper at 11:20 AM on November 11, 2006 [1 favorite]

Also, good luck!
posted by freudianslipper at 11:21 AM on November 11, 2006

If you're doing just a few small jobs, I wouldn't worry about the taxes. You'll have to fill out schedules C and SE when you file but you can figure them out easily enough at the time.

If you've got bigger jobs, say, over $5000, or you plan to keep doing this and want to get set up now for when the day comes that you do have significant income, get a schedule C now and read the instruction book. You'll see there are categories for expenses. At tax time, it helps to have your expenses already separated into these categories. A folder full of receipts for each one works for me.

Regarding how much to save for taxes, it's obviously better to save too much than too little. I set aside about 20%.

With significant income, the IRS will want you to pay quarterly taxes for the current year. This is form 1040-ES. Here you try to guess what your tax bill is going to be at the end of the year and send in 1/4 of that in advance every three months (roughly). If you get it wrong, they won't haul you off to jail. They'll just send you a penalty which is the relatively small interest on the amount you were short. No biggie.

Regarding software, the aforementioned folders for expenses are, in my office, actual manilla folders. Although I do computer work, I've never found value in putting any of my accounting on computer--it's too simple to bother. I have pad of paper sitting on my desk with three columns: date, hours worked, and description. My invoices are TextEdit files with my name, address, and a line of text with the hours/$$ on it. That's it. I print them to PDF and email them, usually.

I've billed over $500k that way since I started.

HTH and good luck!
posted by nonmyopicdave at 12:02 PM on November 11, 2006

While I'm rambling (and the baby is still asleep on my lap)...

The Contract. For the free lancer, its purpose is to make as clear as possible what the client is expecting and what and when they're going pay you for it. It's helpful for both sides to rigorously put into writing what the work is going to be. This is purely for project planning purposes. It does nothing but help both sides to think the project all the way through and write it down before you start.

Although the contract is also legal document, if you have to use it in a legal context, you've already lost. If you have a client for whom you think, "these people seem flakey, but I'll have a signed contract just in case," do not take the client.

Work for people you trust and use the contract as a project outline.

That said, don't totally neglect the fine print. Read it. There may be relevent parts you want to negotiate. You may want to be paid within 60 days instead of 90. Or if they themselves are a contractor to say, Local Megacorp, there may be something in there that says that you can't go around them and work for Megacorp directly. Maybe you'll want to change that to say that you won't work for Megacorp directly on this project. Because maybe Megacorp is a potential client for you for an unrelated project.

The purpose of the contract is to make a crystal clear agreement with a party you already trust.
posted by nonmyopicdave at 12:55 PM on November 11, 2006

Hey Siobhan, I tried to figure out how to use Excel to clock in and out but I never could make it work. Would you mind sharing that file? Email's in the profile.
posted by librarina at 1:28 PM on November 11, 2006

librarina; you could have a formula to subtract one time from another to give total elapsed time. Manually enter start time and end time in another cell, and format all three as Time.

If you want slightly more automation, stick =NOW() in one cell, and copy this value to the Start Time block when you begin, and then copy it to the End Time block when finished. This could be done with a macro, but that seems like more work than necessary.
posted by odinsdream at 7:56 PM on November 11, 2006

Format as Time! That must have been what I was missing. Thanks.
posted by librarina at 8:35 PM on November 11, 2006

I've been using Basecamp for about a year and would definitely recommend it.
posted by gomichild at 8:35 PM on November 11, 2006

Yes, odinsdream's got it right -- let me know, though, if you'd still like that file. It is very simple but I'm glad to send it along.
posted by Siobhan at 8:23 AM on November 12, 2006