Freelance Work: Is It for You?

What you need to know before you become a freelancer.

Working as a freelancer provides many benefits, but there are downsides to working for yourself as well. It pays to learn the pros and cons of being a freelancer or independent contractor, as well as the administrative duties you'll have to take on, before you take the plunge.

Working as a freelancer means losing many of the comforts of being someone else's employee, such as regular paychecks, paid vacations, and health insurance benefits. In return, however, you'll enjoy the freedom to work how, when, and where you please. You'll have the power to choose your own projects, set your own rates, and -- most importantly -- work from home whenever you wish.

Here's what to expect if you become a freelancer.

Choosing What Services to Offer

If freelancing sounds like the life for you, start by identifying the type of work that you can do and that a company or client would be interested in outsourcing to you. Companies most often hire freelancers for projects that are labor-intensive or require specialized knowledge. Companies also prefer to outsource discrete assignments that one person can handle independently, like copyediting or preparing a PowerPoint presentation.

Other types of freelance assignments include architectural drafting, bookkeeping, preparing public relations materials, proofreading, writing and editing, illustrating, researching, graphic design, Web design, and photography. In general, any task you could do from home without a lot of interaction with other people is one you could probably handle on a freelance basis.

The Ups and Downs of Uncertain Earnings

Perhaps the biggest downside of being a freelancer is the uncertainty that comes with the territory. No longer will you be able to count on a regular paycheck with which to pay the bills. Instead, you'll have to hope that you get enough projects to make ends meet. The unpredictability of workflow can be stressful, especially if you've got a family to support.

The flip side to this is that the more you work as a freelancer, the more you earn. (This isn't the case for most professionals, who are ineligible for overtime pay.) If you're willing to put your nose to the grindstone, you could take home far more than you would have ever made as a regular employee.

Losing Health and Retirement Benefits

Say goodbye to paid benefits like health insurance and matching retirement contributions when you strike out on your own. Most clients, however, are willing to pay freelancers much higher hourly or per-project rates precisely because, unlike employers, they aren't paying you benefits. For example, a company might pay an employee $25 per hour to do basic bookkeeping, but pay a freelancer $35 per hour for the same work.

Before you jump at the chance to earn freelance rates, run the numbers to see how much it would cost you to replace your existing benefits. How much will you have to pay for your own health insurance coverage? Are there valuable retirement benefits that you will be giving up by working for yourself? Many freelancers enjoy the luxury of self-employment only because they have spouses with regular jobs -- ones that come with employer-sponsored health insurance coverage for the entire family.

Tax Issues

Freelancers often pay less taxes than employees with identical incomes. But it might not look that way at first glance. Freelancers pay twice what employees pay in Social Security and Medicare taxes. For 2017, this amounts to 12.4% in Social Security taxes on you net self-employment income up to $127,200 and 2.9% in Medicare taxes on all your net self-employment income. If you earn more than $200,000 ($250,000 if you're married and file jointly) you'll have to pay an additional 0.09% Medicare tax on your income over these levels. (To learn more about paying taxes when you work for yourself, read Paying Estimated Taxes.)

However, this tax hit is often more than offset by certain tax benefits available to the self-employed, such as the home office deduction and many other business deductions not available to employees. (To learn more about freelancer tax deductions, listen to Nolo's podcast Deductions for the Self-Employed and read Nolo's article The Home Office Tax Deduction.)

Your Bookkeeping Duties

As a freelancer, you have to keep track of your time and your work, and bill your clients accordingly. You also should record your expenses, such as phone bills, office supplies, and postage, so you can claim deductions at tax time. In addition, you must make quarterly estimated tax payments to Uncle Sam to make up for the fact that none of your income is being withheld by an employer. (To learn about estimated taxes, read Nolo's article Paying Estimated Taxes.)

Collectively, these bookkeeping and tax obligations can munch up a lot of time. And if you let your administrative tasks slip, you might not get paid in full or on time, or you may get into hot water with the IRS. You'll need to become more organized than you perhaps ever thought possible.

To learn more about the ins and outs of becoming a freelancer, get Working for Yourself: Law and Taxes for Independent Contractors, Freelancers & Gig Workers of All Types (Nolo).

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